EUR/JPY hovers above 171.50 as traders adopt caution ahead of Eurozone PMIs

EUR/JPY moves little following the release of Jibun Bank Purchasing Managers’ Index data.
The Japanese Yen struggles amid persistent uncertainty over the Bank of Japan’s policy outlook.
Eurozone HCOB PMIs forecast stand at 49.5 for Manufacturing and 50.6 for Services.

Akhtar Faruqui FXStreet

EUR/JPY remains steady after two days of losses, hovering around 171.70 during the Asian trading hours on Thursday. The currency cross moves little as traders adopt caution ahead of HCOB Purchasing Managers’ Index (PMI) data from Germany and the Eurozone.

In Japan, the Jibun Bank Manufacturing PMI improved to 49.9 in August from the previous month's final reading of 48.9, though it remained in contraction territory for the second straight month. Meanwhile, Services PMI fell to 52.7 from July’s five-month high of 53.6, though it marked the fifth consecutive month of expansion in the services sector.

The EUR/JPY cross may appreciate as the Japanese Yen (JPY) struggles amid ongoing uncertainty over the Bank of Japan’s (BoJ) policy outlook. However, domestic inflation stays elevated and wages continue to lag behind price growth, raising the likelihood of the BoJ rate hikes.

Additionally, the Bank of Japan raised its inflation forecast at its July meeting, increased the odds of a rate hike by year-end. However, BoJ Governor Kazuo Ueda has remained cautious, emphasizing that “underlying inflation” is yet to firmly reach the 2% target.

Eurostat reported on Wednesday that the European Union (EU) Harmonized Index of Consumer Prices (HICP) climbed 2% year-over-year as expected in July. Core HICP came at 2.3% YoY as expected and unchanged from June’s print.

ECB President Christine Lagarde stated that recent trade deals have eased, though not eliminated, uncertainty, adding that the European economy remains resilient despite a challenging global environment.

Economic Indicator

HCOB Services PMI

The Services Purchasing Managers Index (PMI), released on a monthly basis by S&P Global and Hamburg Commercial Bank (HCOB), is a leading indicator gauging business activity in the Eurozone services sector. As the services sector dominates a large part of the economy, the Services PMI is an important indicator gauging the state of overall economic conditions. The data is derived from surveys of senior executives at private-sector companies from the services sector. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the services economy is generally expanding, a bullish sign for the Euro (EUR). Meanwhile, a reading below 50 signals that activity among services providers is generally declining, which is seen as bearish for EUR.

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