EUR/JPY drops after facing barricades around 137.00, ECB on track to hike rates

The EUR/JPY pair has slipped to near 136.85 after failing to sustain above the immediate hurdle of 137.00 in the Asian session. The cross plunged on Wednesday after the release of the German inflation data. Apart from that, Germany’s Finance Minister Christian Lindner displayed a gloomy picture of Germany and the Eurozone.

The Germany Harmonized Index of Consumer Prices (HICP) landed at 8.5%, in line with the estimates and the prior release. It is worth noting that US inflation dropped sharply on declining oil prices while German inflation remained steady, which indicates that the energy crisis has deepened in the Eurozone area.

Germany’s Lindner featured a gloomy outlook citing that the euro area’s powerhouse is fragile as the European gas crisis deepens by no means out of the Russia-Ukraine war. He added that the economy is on brink of recession, as companies expect significantly worse business activity in the coming months.

The already tedious job of the European Central Bank (ECB) is getting trickier as higher price pressures are accompanied by an energy crisis. Above all, the ECB is on track to elevate its interest rates by 50 basis points (bps). The ECB also hiked its interest rates by 25 bps in July.

On the Tokyo front, the Covid situation and lower inflation is getting more critical for the Bank of Japan (BOJ). The central bank is failing in keeping the inflation rate above 2% and pushing growth rates higher despite the continuation of an ultra-loose monetary policy. Apart from that, the ongoing cabinet re-shuffle is impacting the yen bulls.