The EUR/JPY currency pair extended gains on Wednesday ahead of the outcome of the European Central Bank’s policy meeting.
The ECB is largely expected to raise its main refinancing operations rate by 25 basis points to 2.40% at its June 11th meeting.
And, the ECB deposit facility rate is expected to be raised to 2.25%.
This move would make the central bank the first among its major peers to tighten policy in reaction to a surge in energy prices linked to the conflict in the Middle East.
ECB Executive Board member Isabel Schnabel had said that the central bank should move ahead with an interest rate hike in June, even if US peace talks with Iran are successful. She highlighted that the conflict had lasted significantly longer than anticipated and that elevated energy prices were increasingly affecting the wider economy.
And, ECB policy maker Francois Villeroy de Galhau again underscored that the central bank “will do what is necessary” to ensure inflation remains in line with its target.
Following the decision, ECB President Christine Lagarde is scheduled to hold a press conference to present the monetary policy statement and respond to questions from journalists. Any signals of a more aggressive tightening path or firm anti-inflation stance from ECB officials could offer additional near-term support to the Euro.
At the same time, the Japanese Yen has failed to draw sustained support even after wholesale inflation accelerated sharply.
Japan’s Producer Price Index (PPI) climbed 6.3% year-over-year in May, driven in part by higher energy costs linked to ongoing Middle East tensions. The latest reading comfortably exceeded April’s upwardly revised 5.3% and topped market expectations of 5.5%, marking the fastest pace of wholesale price gain in three years.
The steep rise in factory-gate prices has reinforced market conviction that the Bank of Japan is moving closer to a more hawkish policy stance. With policymakers confronting both a sharply weaker Yen and rising import costs, investors widely anticipate an interest rate hike at the BoJ’s policy meeting next week.
The EUR/JPY currency pair was last up 0.20% on the day to trade at 185.38.
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