• EUR/JPY soared above the 155.50 zone, hitting a fresh cycle high of 155.75.
• ECB’s Nagel and Schnabel pointed at additional rate hikes.
• Investors await Friday’s inflation data from Japan.

The EUR/JPY is gaining ground on Wednesday following comments from European Central Bank’s (ECB) speakers which fueled a rise in German bond yields making the Euro gain appeal. On the other hand, the JPY seems to be losing interest after dovish clues seen in Bank of Japan’s (BoJ) Aprilf meeting minutes. All eyes are now on Friday inflation data for May.

Yield divergence favors the Euro post-ECB speakers

On Wednesday, ECB’s Isabel Schnabel stated that they should be “stubborn” because inflation remains “stubborn”, while Joachim Nagel claimed that he is confident that inflation will come back to target but that “there is still way to go”. As a reaction, the German yields are seeing gains across the curve. The 10-year bond yield rose to 2.41%, while the 2-year yield stands at 3.19% and the 5-year yields 2.56%, respectively. In that sense, as higher domestic yields attract foreign capital, the Euro strengthens. 

As for now, according to WIRP (World Interest Rate Possibilities), markets are expecting a 25 basis point (bps) hike at the next ECB July meeting. Additionally, the market bet on a 60% probability of another 25 bp rate hike in September, which is expected to increase to around 90% probability in the fourth quarter. If this rate trajectory materializes, the maximum deposit rate will reach 4.0%.

On the other hand, following the release of the dovish minutes from April’s BoJ meeting, all eyes are set on Friday inflation figures from Japan. The Consumer Price Index (CPI) is expected to rise to 4.1% (YoY) vs. the previous 3.5%, while the Core inflation rate, which excludes the influence of oil and food prices, is projected to rise to 4.4% from the previous release of 4.1%