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Euro under pressure on EU political woes

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The EURJPY cross extended its decline near 168.85 during early European trading on Monday, with the Euro attracting some sellers amid the uncertainty over the political scenario in France.

President Emmanuel Macron dissolved the French national assembly and announced a snap election after exit polls indicated that his Renaissance party would be defeated by the far-right opposition in European parliamentary elections on Sunday, according to CNN.

The political uncertainty surrounding the Eurozone’s second-biggest economy drags the EUR lower and creates a headwind for EURJPY.

The European Central Bank cut interest rates by 25 basis points at its June meeting last week. The ECB governing council stated that it “will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction.”

On the JPY front, the recent Japanese economic data came in mixed on Monday.

Japan’s Cabinet Office reported that the nation’s Gross Domestic Product (GDP) shrank by 0.5% QoQ in the first quarter compared to the previous reading and the consensus of -0.5%.

Meanwhile, the GDP Annualised contracted by 1.8% in Q1, compared to a previous contraction of 2.0%, better than the estimation of -1.9%.

Apart from this, Japan’s 10-year government bond (JGB) yield edged higher to 1.029% ahead of the Bank of Japan’s monetary policy meeting on Friday.

The BoJ is expected to keep its interest rate steady, but the central bank officials might likely consider reducing their massive debt holdings.

“If they change the amount now and heighten volatility, it will be difficult for the bank to raise interest rates to normalize policy,” said Takashi Fujiwara, chief fund manager at the fixed-income department at Resona Asset Management Co.

(Source: OANDA)