Yen Strength and ECB Rate Hike: Markets on High Alert
The yen remains strong, with no confirmation yet from Japan or the US about market intervention. The European Central Bank (ECB) is set to raise interest rates next week, as indicated by futures pricing in a 100% chance of a 25bps hike.
German Chancellor Merz is meeting with the ECB ahead of the Berlin Council, and two German institutes have marked up their forecasts for 2026 and 2027. The recovery is fragile, according to IFW and IFO, which cited risks such as the Iran war and the fading of fiscal stimulus.
Swiss inflation printed above expectations at its fastest annual pace in two years, while Q2 growth beat estimates. In contrast, service PMIs for France confirmed an eighth month of contraction, with new business falling below the line.
The Bank of Japan (BoJ) is considering a quarter-point move this month on upward price risks, and bond yields have fallen hard into auction demand was tepid, with the cover ratio slipping and the tail widening. The yen has extended through Tokyo, breaking below 157, with July's joint intervention still fresh in memory.