EUR/JPY trades near 3-week low as lower US yields boost Yen

The EUR/JPY currency pair hovered just above a fresh 3-week low on Thursday, as core inflation in the Eurozone decelerated to a 22-month low in January, while the Japanese Yen received a boost from lower US Treasury yields.

Preliminary data showed on Thursday that Euro Area’s annual inflation had slowed to 2.8% in January from 2.9% in December, while matching market consensus.

Annual core CPI inflation, which excludes volatile categories such as food and energy, continued to decelerate in January, at 3.3%, from 3.4% in December. It has been the lowest core inflation rate since March 2022.

But, since core inflation slowed less than expected, this somewhat reinforced the European Central Bank’s argument that interest rate cuts must not be rushed.

Energy prices in the bloc dropped 6.3% year-on-year, following a 6.7% decline in December, while services inflation was stable at 4%.

Last month, prices rose at a slower rate for food, alcohol and tobacco (5.7% YoY versus 6.1% YoY in December), and non-energy industrial goods (2% YoY versus 2.5% YoY in December), Eurostat reported.

In month-over-month terms, consumer prices in the Euro Area decreased 0.4% in January, after rising 0.2% in December.

Additional data showed the seasonally-adjusted unemployment rate in the bloc had remained steady at 6.4% in December, in line with market estimates and staying historically low.

Meanwhile, the FOMC meeting outcome drove US Treasury yields lower, providing support to the Yen. Market players rushed to haven assets such as bonds due to fresh concerns over regional US banks, after New York Community Bancorp’s stock plummeted 37% to the lowest levels in more than 20 years after reporting a surprise loss.

The Federal Reserve kept the federal funds rate target range unchanged, while Fed Chair Jerome Powell pushed back on the idea that an interest rate cut could come as early as March.

As of 11:45 GMT on Thursday the EUR/JPY currency pair was edging down 0.22% to trade at 158.613. Earlier in the session, the minor Forex pair went down as low as 158.079. The latter has been the pair’s weakest level since January 10th (157.764).