EUR/JPY establishes below 143.00 as ECB keeps interest rates unchanged, dictates hawkish guidance

The EUR/JPY pair is displaying back and forth moves below 143.00 and is expected to extend its losses as the European Central Bank (ECB) adopted a ‘neutral’ stance on the interest rates in its monetary policy meeting on Thursday. The ECB kept interest rates unchanged despite mounting inflationary pressures but dictated hawkish guidance for its July and September interest rate decisions.

A decision of keeping the interest rates at rock-bottom levels despite an inflation rate above 8% has depressed the shared currency bulls. The eurozone is facing extreme selling pressure from the market participants. It is worth noting that the price pressures are advancing majorly by higher food and energy prices, thanks to the military activities between Russia and Ukraine along with a disruptive supply chain.

As per the guidance, the ECB will end up its Asset Purchase Program (APP) on July 1 and will elevate the interest rates by 25 basis points (bps) in July and might be a higher than 50 bps rate hike announcement in September.

As per the statements, it looks like the ECB is moving toward the quantitative tightening process gradually so that the economy gets plenty of time to adjust to the turning wheel of the rate cycle.

On the Tokyo front, sustenance of ultra-loose monetary policy and capping of the bond yields at 0.25% against the hawkish G-10 is hurting the Japanese yen. The Bank of Japan (BOJ) is worried over lower demand levels despite the achievement of 2% inflation. The achievement of desired inflation levels is majorly contributed by higher fossil fuel prices.