- EUR/JPY is displaying a subdued performance as fresh hawkish ECB bets failed to strengthen the Euro.
- The ECB might continue hiking interest rates considering a sheer deviation b/w the current inflation rate and the desired one.
- Higher Japan’s Labor Cash Earnings data might propel inflation projections ahead.
The EUR/JPY pair is displaying topsy-turvy moves in a narrow range above the critical resistance of 142.00 in the early Asian session. The cross is expected to witness a downside move below the same despite the hawkish European Central Bank (ECB) bets.
A significant downside in the Eurozone inflation to 8.5% and a recent increase in interest rates by 25 basis points (bps) to 2.50% by ECB President Christine Lagarde in the battle against higher inflation still does not carry confidence for inflation softening. ECB President in her commentary claimed that the price index in Eurozone has peaked now more decline will be recorded in the inflation rate.
The inflation rate is extremely skewed from the desired rate of 2%, therefore the street sees a continuation of the policy tightening spell. Economist at UOB Group Lee Sue Ann cited “In line with our current forecasts, the ECB is expected to hike by another 50bps at the next meeting on 16 Mar. This will bring the refinancing rate to 3.50% and the deposit rate to 3.00% by 1Q23. The Mar meeting will also feature a new set of economic forecasts that should heavily influence the ECB’s decision going forward.
Meanwhile, the Japanese Yen has not responded actively to the Overall Household Spending data. The economic data has contracted by 1.3% vs. the estimates of 0.2% and the former release of 1.2%. This might impact the Bank of Japan’s aim of keeping inflation steady around 2%.
Contrary to that, the Labor Cash Earnings data has jumped to 4.8% against the consensus and the prior release of 0.9% and 0.5% respectively. Japanese officials and the Bank of Japan (BoJ) are dedicating time heavily to escalae wage growth. Further, higher funds equipped by households for disposal will support Producer Price Index (PPI) and eventually the inflation rate.
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