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Yen trades higher on risk-on sentiment, despite dovish ECB

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The Japanese yen traded on a stronger note around 164.90 to the euro on Monday, as the JPY encounters challenges amid a resurgence in risk-on sentiment, with no notable geopolitical developments emerging over the weekend.

However, the European Central Bank will commence interest rate cuts in June, driven by a tepid Eurozone economic outlook and moderating core inflationary pressures.

The ECB has conveyed a clear message to markets, suggesting that an interest rate cut could be imminent if significant developments don’t occur.

As Reuters reported on Sunday, François Villeroy de Galhau, the governor of the Bank of France, said that the tension in the Middle East is not expected to lead to a significant increase in energy prices, and as a result, it is unlikely to impact the ECB’s intention to commence interest rate cuts in June.

Antony Blinken, the US Secretary of State, speaking after the G7 meeting of foreign ministers in Capri, Italy, called for restraint following comments from an Iranian official indicating no immediate plans for retaliation against the Israeli missile strike, The Guardian reported.

Furthermore, Bank of Japan Governor Kazuo Ueda made dovish remarks during a seminar hosted by the Peterson Institute for International Economics on Friday, according to Reuters.

Ueda emphasised the necessity for the BoJ to maintain accommodative monetary policies in the foreseeable future due to underlying inflation remaining “somewhat below” the 2% target, with long-term inflation expectations hovering around 1.5%.

(Source: OANDA)