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12/05/25
29
EUR/JPY Pulls Back as Trade Optimism Weighs on Yen
The EUR/JPY currency pair experienced a slight pullback after reaching a peak not seen in over a week, with prices hovering just under the 164.00 level, primarily due to a weakening of the Japanese Yen (JPY). Following a significant trade deal announcement between the United States and China, the pair initially surged to around 164.20 but has since dropped nearly 50 pips to the 163.80-163.85 range, reflecting a daily increase of 0.20%.
The recent trade agreement has inspired a wave of optimism in global markets, diminishing the appeal of safe-haven currencies like the JPY. The positive sentiment among investors, however, is tempered by concerns regarding Japan’s economic outlook, particularly amid uncertainties related to tariffs from the US, which are creating bearish pressure on the Yen.
Market participants are currently exercising caution, refraining from making aggressive bets as they await clarification from the upcoming US-China joint statement regarding the specifics of the trade deal. Additionally, speculation surrounding potential interest rate hikes by the Bank of Japan (BoJ) in 2025 provided some support for the JPY against more significant declines. Recent minutes from the BoJ meetings have indicated an intention to consider further rate increases should inflation persist at elevated levels.
While the US Dollar has seen a modest uptick, which adds downward pressure on the Euro, this situation highlights a stark contrast in monetary policy expectations. The European Central Bank (ECB) appears to be on a different trajectory, with indications that it may continue to lower rates amid economic slowdowns and falling inflation. This divergence could further dissuade traders from pursuing aggressive bullish positions in the EUR/JPY cross, resulting in caps on potential gains.
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