Euro Weakens Amid BoJ Hike Expectations and German Inflation Data
The Euro has weakened against the Japanese Yen, trading near 185.20 during the European session on Monday. The currency pair is under downward pressure as the Yen outperforms other major currencies amid growing concern that the Bank of Japan could lift interest rates at its September policy meeting.
Markets are strongly pricing in a BoJ rate increase, with an implied probability of around 84% for a hike in September. However, only the BoJ has yet to make any clear statements regarding the timing of its next move.
The Euro is trading cautiously ahead of the release of Germany's Harmonized Index of Consumer Prices (HICP) for August, expected to show an acceleration in annual inflation to 3% YoY compared with 2.8% in July. Any indication that price pressures in Germany are picking up could strengthen expectations that the European Central Bank will raise interest rates at its meeting next month.
Financial market participants appear broadly confident that the ECB will proceed with an interest rate increase in September, with the market nearly fully priced for a 25bp rate hike. However, some analysts argue that recent data are 'marginally dovish versus market pricing,' suggesting that the ECB may deliver only one more 25bp increase before moving to a pause.