EUR/JPY steadies near 187.50 as improved oil prices weighs on Japanese Yen
- EUR/JPY maintains its position as the Japanese Yen struggles on improving oil prices.
- Oil prices gain as USâIran talks face uncertainty after Trump said he isnât considering extending the ceasefire.
- The currency crossâs upside may be limited as the Euro weakens amid cautious sentiment following uncertainty over renewed Iran talks.
EUR/JPY moves little after registering little losses in the previous day, trading around 187.30 during the early European hours on Wednesday. The currency cross maintains its gains as the Japanese Yen (JPY) remains under pressure, reflecting Japanâs heavy dependence on Middle East oil imports, as oil prices pare daily losses. However, the JPY may receive support from speculation surrounding potential Japanese intervention.
Crude oil prices gain as US-Iran further talks come into question after US President Donald Trump said in an ABC News interview on Wednesday that he is not considering extending the ceasefire, adding that he does not believe it will be necessary. âI think youâre going to be watching an amazing two days ahead. I really do,â Trump remarked.
Moreover, the US military also announced a full blockade of the Strait of Hormuz on Tuesday, tightening supply conditions and casting doubt over the next round of negotiations with Iran.
Meanwhile, Bank of Japan (BoJ) Governor Kazuo Ueda said policymakers must remain vigilant to the economic fallout from the Middle East conflict, warning that higher oil prices could weigh on Japanâs growth outlook.
The upside in the EUR/JPY cross may be limited as the risk-sensitive Euro (EUR) comes under pressure, with market sentiment turning slightly cautious after uncertainty emerged over renewed Iran talks.
However, The New York Post reported earlier that Trump had indicated talks could resume this week, while also opposing a 20-year suspension of Iranâs nuclear enrichment program. Meanwhile, Vice President JD Vance pointed to âsignificant progressâ in the initial round of Iran negotiations held in Pakistan, with follow-up discussions potentially expected within days.
The Euro (EUR) may find underlying support as markets continue to price in modest tightening by the European Central Bank (ECB) at the April 30 meeting, along with expectations of two additional rate hikes this year. ECB President Christine Lagarde said the central bank is well-positioned to manage developments related to Iran, while cautioning that it remains too early to dismiss the broader impact of the shock.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms ârisk-onâ and ârisk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a ârisk-onâ market, investors are optimistic about the future and more willing to buy risky assets. In a ârisk-offâ market investors start to âplay it safeâ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of ârisk-onâ, stock markets will rise, most commodities â except Gold â will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a ârisk-offâ market, Bonds go up â especially major government Bonds â Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are ârisk-onâ. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of ârisk-offâ are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the worldâs reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them â even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
