Euro advances against Japanese Yen ahead of ZEW Survey data

EUR/JPY extends its gains for the second consecutive day, trading around 179.00 during European hours on Tuesday. The currency cross is trending upward as the Japanese Yen (JPY) faces headwinds from rising global oil prices, which significantly inflate import costs for Japan's energy-dependent economy.

Despite these immediate pressures, the JPY could retain underlying support from anticipation of more aggressive monetary tightening by the Bank of Japan (BoJ); the ongoing unwinding of global carry trades and subtle signs of domestic investors repatriating foreign assets all provide a steady cushion for the currency.

Meanwhile, the Euro (EUR) continues to find firm backing from persistent hawkish sentiment surrounding the European Central Bank (ECB). Traders await ZEW Survey data for Germany and the Eurozone later in the day.

Key ECB officials have repeatedly warned of lingering upside inflation risks, signaling that additional rate hikes remain on the table following their recent quarter-point policy increase. Financial markets and major institutional players are rapidly aligning around this hawkish trajectory. Leading banks, including Goldman Sachs, Citi, and Barclays, are forecasting another rate increase in December. Market pricing strongly echoes this outlook, with LSEG data placing the odds of a December quarter-point hike at 94%, while Citi expects the tightening cycle to potentially stretch into March 2027.

Commerzbank shifts to higher-for-longer ECB rate path

Economists at Commerzbank report that the latest hawkish signals from the ECB have forced a rethink of their policy outlook. “This has prompted us to revise our ECB forecast,” they explain, noting that they “now expect a third rate hike in December, when the next set of projections is released, bringing the deposit rate to 2.75%.” Reflecting concerns that “persistently high inflation, particularly core inflation,” will keep price pressures above target for longer, they add that they “no longer anticipate rate cuts in 2027.”