Euro flat lines above 180.00 vs weak Yen as German political turmoil offsets upbeat PMIs

EUR/JPY cross struggles to gain any meaningful traction amid mixed fundamental cues.
German political uncertainty overshadows the upbeat PMI and firming ECB hike bets.
The BoJ’s dovish outlook continues to undermine the JPY, lending support to the cross.

Haresh Menghani FXStreet

The EUR/JPY cross seesaws between tepid gains/minor losses through the first half of the European session on Wednesday and moves little following the release of flash Eurozone PMIs. Spot prices, however, remain confined within the previous day's broader range and currently trade just above the 180.00 psychological mark, nearly unchanged for the day.

The preliminary Eurozone HCOB Composite PMI defied expectations and jumped to 53.1 in September, which marks its highest reading since April 2023. Solid growth was registered in both the manufacturing and services sectors, with the latter being a key driver of the improvement in September. Additional details of the survey revealed that firms faced the sharpest rise in operating costs in four months, strengthening the case for another interest rate hike by the European Central Bank (ECB) as early as October.

The Euro, however, struggles to attract any meaningful buyers amid political instability in Germany – the Eurozone's largest economy. In fact, German Chancellor Friedrich Merz’s Christian Democratic Union (CDU) suffered humiliating defeats in state elections. Merz’s CDU is currently below the 5% threshold required to sit in parliament, fueling speculation that he could be replaced mid-term in a so-called chancellor swap. This continues to undermine the shared currency and caps the EUR/JPY cross.

The Japanese Yen (JPY), on the other hand, continues with its relative underperformance on the back of the Bank of Japan's (BoJ) dovish rate hike to a 31-year high last week. This, in turn, helps limit the downside for the currency pair. However, intervention fears might hold back JPY bears from placing aggressive bets. The mixed fundamental backdrop, in turn, warrants some caution before positioning for an extension of the recent recovery from the 177.80 area, or the year-to-date low, touched last Monday.

Economic Indicator

HCOB Composite PMI

The Composite Purchasing Managers’ Index (PMI), released on a monthly basis by S&P Global and Hamburg Commercial Bank (HCOB), is a leading indicator gauging private-business activity in the Eurozone for both the manufacturing and services sectors. The data is derived from surveys to senior executives. Each response is weighted according to the size of the company and its contribution to total manufacturing or services output accounted for by the sub-sector to which that company belongs. 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 private economy is generally expanding, a bullish sign for the Euro (EUR). Meanwhile, a reading below 50 signals that activity is generally declining, which is seen as bearish for EUR.

AUD/USD meets fresh supply and tests 0.7100 amid weak Australian PMIs

AUD/USD has come under fresh selling pressure and is testing 0.7100 in the Asian session on Wednesday. Australia's flash PMIs showed manufacturing slipped into contraction and services expanding slowly for a second straight month, renewing the pair's downside. Furthermore, a bullish US Dollar acts as a headwind for the pair as traders keenly await the crucial Trump-Xi summit on Thursday. Meanwhile, markets shrug off US-Iran indirect talks.

USD/JPY stands firm near mid-157.00s, close to two-week high

USD/JPY hovers around mid-157.00s in the Asian session on Wednesday, near two-week highs touched last Friday as the BoJ's dovish rate hike continues to undermine the Japanese Yen. Meanwhile, the US Dollar remains firm amid the Fed's hawkish stance, adding support to the pair, though JPY intervention fears cap further gains. Markets pay little heed to the completion of the round of US-Iran indirect talks ahead of Trump-Xi meeting.

Gold approaches $4,300 as Fed hike bets boost USD to fresh high since late July

Gold extends its steady intraday slide through the first half of the European session, reversing a part of the previous day's recovery from sub-$4,300 levels. US Dollar buying remains unabated on the back of the Federal Reserve's hawkish outlook, which is seen as a key factor driving flows away from the non-yielding yellow metal.

Bitcoin outperforms US equities and Gold since mid-August

Bitcoin (BTC) extends its rally, trading above $86,000 at the time of writing on Wednesday after gaining more than 6% so far this week. Strong institutional demand is supporting BTC’s bullish price action, with spot Exchange Traded Funds (ETFs) recording over $714 million in inflows on Tuesday after nearly $1 billion in positive flows the previous day.

Trump meets Xi: Why markets are watching this summit so closely

United States President Donald Trump and Chinese President Xi Jinping are set to meet in Washington on Thursday for a summit closely watched by markets. After several months of easing trade tensions between the US and China, the meeting could determine whether the world's two largest economies extend their truce or enter a new period of uncertainty.

BoJ Recap: Not as hawkish as expected

The Bank of Japan (BoJ) raised its short-term interest-rate target to 1.25% from 1.00% in a 7-2 vote, marking another step in the normalisation of monetary policy and widely matching what everyone has been expecting for weeks.