EUR/JPY edges lower to near 163.00 following ECB Lagarde interview

FXStreet
Updated
Tony
coverImg
Source: DepositPhotos


  • EUR/JPY depreciated after ECB President Christine Lagarde’s interview published by the Financial Times on Monday.


  • ECB Lagarde stated that the central bank is nearing its goal of bringing inflation down to the 2% medium-term target.


  • The recent Japan inflation report has increased the odds of a potential rate hike by the BoJ in January or March.




EUR/JPY extends its losses following an interview of European Central Bank (ECB) President Christine Lagarde published by the Financial Times on Monday. The EUR/JPY cross remains tepid around 163.00 during the European hours.


Christine Lagarde, President of the European Central Bank (ECB), emphasized that the central bank is nearing its goal of sustainably bringing inflation down to the medium-term target of 2%. However, Lagarde stressed the importance of continued vigilance, particularly concerning inflation in the services sector.


Earlier in December, Lagarde indicated that the ECB would consider further interest rate cuts if inflation showed continued progress toward the 2% target. She noted that aggressive measures to curb economic growth were no longer deemed necessary under such conditions. This shift suggests that the ECB is gradually moving toward a more accommodative monetary policy stance as inflationary pressures ease.


Additionally, ECB Governing Council member Boris Vujcic stated on Saturday that the central bank plans to continue lowering borrowing costs in 2025, according to Bloomberg. “The direction is clear—it’s a continuation of the path from 2024, with further reductions in interest rates,” he said.


In Japan, strong National Consumer Price Index (CPI) data released on Friday left the door open for a potential interest rate hike by the Bank of Japan (BoJ) in January or March. Inflation reached a three-month high of 2.9% year-over-year in November, up from 2.3% in October. Additionally, the annual core inflation rate rose to 2.7%, exceeding market expectations of 2.6%.


However, traders remain cautious about the BoJ's intentions to hike rates further following the central bank’s decision to keep its policy rate for the third consecutive meeting, keeping the short-term rate target within the range of 0.15%-0.25%, in line with market expectations. Traders are eagerly anticipating the release of the BoJ’s Meeting Minutes, scheduled for Tuesday.



Interest rates FAQs


Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

* The content presented above, whether from a third party or not, is considered as general advice only.  This article should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.

goTop
quote
Do you find this article useful?
Related Articles
placeholder
Pound Sterling gains as investors shrug off increased BoE dovish betsThe Pound Sterling (GBP) moves higher against its major peers on Monday as investors largely ignore a mild increase in Bank of England’s (BoE) dovish bets for the next year. Traders see a 53-basis points (bps) reduction in interest rates in 2025, up from 46 bps after the BoE policy announcement on Thursday.
Author  FXStreet
4 hours ago
The Pound Sterling (GBP) moves higher against its major peers on Monday as investors largely ignore a mild increase in Bank of England’s (BoE) dovish bets for the next year. Traders see a 53-basis points (bps) reduction in interest rates in 2025, up from 46 bps after the BoE policy announcement on Thursday.
placeholder
Weekly Market Outlook: Markets Enter Holiday Season; BOJ and RBA Minutes Draw Attention This week, global markets enter the Christmas holiday season, with U.S. and European markets closed for Christmas.
Author  Mitrade
4 hours ago
This week, global markets enter the Christmas holiday season, with U.S. and European markets closed for Christmas.
placeholder
EUR/USD consolidates ahead of holiday-shortened week as Fed supports shallow rate-cut cycleEUR/USD trades quietly at the start of the week around 1.0440 in Monday’s European session. The major currency pair trades in a limited range amid thin trading volume in a holiday-shortened week due to Christmas Eve and Boxing Day on Wednesday and Thursday, respectively.
Author  FXStreet
6 hours ago
EUR/USD trades quietly at the start of the week around 1.0440 in Monday’s European session. The major currency pair trades in a limited range amid thin trading volume in a holiday-shortened week due to Christmas Eve and Boxing Day on Wednesday and Thursday, respectively.
placeholder
AUD/USD holds steady near 0.6250 ahead of RBA Minutes The AUD/USD pair trades on a flat note around 0.6250 during the early Asian session on Monday.
Author  FXStreet
13 hours ago
The AUD/USD pair trades on a flat note around 0.6250 during the early Asian session on Monday.
placeholder
Japanese Yen bulls remain on the sidelines despite strong Japan’s National CPI printThe Japanese Yen (JPY) prolongs a two-week-old downtrend and hits a five-month low against its American counterpart during the Asian session on Friday.
Author  FXStreet
Dec 20, Fri
The Japanese Yen (JPY) prolongs a two-week-old downtrend and hits a five-month low against its American counterpart during the Asian session on Friday.
Real-time Quote