EUR/JPY holds negative ground below 171.50 after German Retail Sales data

EUR/JPY loses ground to near 171.45 in Friday’s early European session.
German Retail Sales rose 1.9% YoY in July, weaker than expected.
Tokyo's August CPI inflation report keeps alive expectations for further BoJ rate hikes.

Lallalit Srijandorn FXStreet

The EUR/JPY cross loses momentum to around 171.45 during the early European session on Friday. The Euro (EUR) weakens against the Japanese Yen (JPY) after the downbeat German Retail Sales data. The attention will shift to the preliminary reading of Germany’s August Consumer Price Index (CPI), which is due later on Friday. Also, the European Central Bank's (ECB) Luis de Guindos is scheduled to speak.

Data released by Destatis on Friday showed that German Retail Sales fell 1.5% month-over-month in July, compared to a 1.0% rise in June. This figure came in below the market consensus of -0.4%. On an annual basis, Retail Sales increased 1.9% in July versus a rise of 4.9% prior, below the market consensus of 2.6%. The EUR remains weak in an immediate reaction to the weaker-than-expected German Retail Sales data.

The Japanese Yen receives support from Tokyo's CPI inflation report for August. Tokyo's headline CPI rose 2.6% year-on-year in August, compared to 2.9% in July. This registered the third consecutive month of moderation in Tokyo inflation rate, which remains above the Bank of Japan's (BoJ) 2% target.

Additionally, Tokyo's core CPI inflation eased to 2.5% year-on-year in August from 2.9% in July, matching market forecasts. The Tokyo CPI ex Fresh Food and Energy, which is closely watched by the BoJ, climbed 3.0% YoY in August, compared to the previous reading of 3.1%. This report keeps alive expectations for further interest rate hikes. According to a Reuters poll in August, nearly two-thirds of economists expect another 25 basis point (bps) hike, up from just over half a month ago.

Euro FAQs

What is the Euro?

The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What is the ECB and how does it impact the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

How does inflation data impact the value of the Euro?

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

How does economic data influence the value of the Euro?

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

How does the Trade Balance impact the Euro?

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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