Euro Surges on Tightening Expectations, Yen Weighed Down by Japan's Fiscal Woes

The Euro is gaining strength as investors expect the European Central Bank to continue tightening monetary policy. The ECB's September meeting is now seen as a near-certainty for an interest rate hike, with markets assigning around a 90% chance.

This expectation is supported by recent macroeconomic data showing that Eurozone inflation accelerated to 2.9% YoY in July from 2.8% previously, while core inflation unexpectedly rose to 2.5% YoY.

The Japanese Yen remains under pressure despite last week's coordinated currency market intervention by Japanese and US authorities. However, investors are concerned about Japan's deteriorating fiscal outlook, including a proposal to temporarily reduce the food consumption tax from 8% to 1% in April 2027.