Euro advances as Eurozone PMIs and Lagarde speeches take focus while Yen stays pressured

EUR/JPY advances toward 185.30 on Monday, gaining 0.16% at the time of writing, as markets prepare for the release of the Eurozone’s preliminary HCOB Purchasing Managers Index (PMI) data and closely watch speeches from the President of the European Central Bank (ECB).

The European economic calendar will take center stage on Tuesday with the first estimates of the June PMIs, which are expected to provide fresh clues about the region’s growth momentum. Investors will also closely monitor comments from ECB President Christine Lagarde on Monday for further guidance on the monetary policy outlook.

On the monetary policy front, ECB policymaker and Governor of the National Bank of Belgium Pierre Wunsch said on Friday that another interest rate hike could come as soon as next month if the central bank sees additional evidence that inflationary pressures are spreading beyond the energy sector. The ECB’s deposit rate currently stands at 2.25%, while financial markets continue to price in at least one additional 25-basis-point increase in the coming months.

In Japan, the Japanese Yen (JPY) remains under pressure despite renewed verbal intervention warnings from Tokyo. Japan’s Finance Minister Satsuki Katayama reiterated on Monday that authorities stand ready to respond to excessive currency market moves at any time, although she declined to comment on specific intervention levels.

The Japanese currency is also being weighed down by concerns over the economic impact of the Middle East conflict and ongoing disruptions to energy supplies through the Strait of Hormuz. Iran announced the closure of the strategic waterway after accusing the United States (US) and Israel of violating the ceasefire, while US President Donald Trump threatened further military action against Iran if Hezbollah continues its attacks on Israel.

These developments are currently overshadowing expectations for further monetary tightening by the Bank of Japan (BoJ). Nevertheless, minutes from the BoJ’s April meeting showed that some board members favored raising interest rates more quickly to prevent inflation from overshooting. BoJ Deputy Governor Shinichi Himino also reiterated that the central bank will continue adjusting rates in line with economic conditions, inflation developments and financial market trends.

Market participants will now focus on Japan’s PMI data due on Tuesday and the release of the Bank of Japan (BoJ) Summary of Opinions from its June meeting on Wednesday, following the 25-basis-point rate increase that lifted the policy rate to 1%, for further insight into the country’s economic outlook.