EUR/JPY holds positive ground above 168.00, Eurozone recession ends

The EUR/JPY cross trades in positive territory for the second consecutive day around 168.25 during the early European trading hours on Wednesday. The upside of the cross is bolstered by stronger-than-expected Eurozone economic data, which may suggest a less urgent need for more accommodative monetary policy from the European Central Bank (ECB).

Eurozone economy has escaped the mild recession suffered in Q4 of last year, according to Eurostat on Tuesday. The Eurozone Gross Domestic Product (GDP) grew by 0.3% QoQ in the first quarter (Q1) of 2024, with France and Germany both expanding by 0.2% QoQ. Meanwhile, the Eurozone headline Harmonized Index of Consumer Prices (HICP) climbed by 2.4% YoY in April, in line with the estimation. The Core CPI figure rose by 2.7% year over year in April, above the market consensus of 2.6%. 

The stronger-than-expected Eurozone economic data indicated that the need for the ECB to cut the interest rate is less urgent than previously expected. This, in turn, provides some support to the Euro (EUR) and creates a tailwind for the EUR/JPY cross. 

The divergence in monetary policy between the ECB and the Bank of Japan (BoJ) weighs on the Japanese Yen (JPY) against the Euro. The BoJ kept interest rates steady around zero last week. However, uncertainty about future rate hikes led to a further decline in the JPY. On the other hand, the risk-off mood and the safe-haven flows amid the ongoing geopolitical tensions in the Middle East might lift the JPY and cap the upside of the cross.