Today's key points in the forex market examine the euro's movements in detail and suggest that the difference between the ECB's rate hikes and Japan's monetary easing policy is affecting the market. Euro buying and yen selling may be restrained in risk-on conditions.
The euro-dollar exchange rate rose as high as $1.2349 before falling to $0.9536, but has recovered to $1.2081 heading into January 2026. The euro-yen exchange rate fell as low as ¥114.43 before rising to ¥187.70 against a backdrop of yen depreciation and dollar appreciation, as well as hopes for an end to the war in Ukraine. The European Central Bank (ECB) raised its policy rate by 0.25% on the 11th, marking its first rate hike in approximately 2 years and 9 months since September 2023. Meanwhile, the Bank of Japan raised its policy rate from 0.75% to 1.0% at its June Policy Meeting, so risk-on euro buying and yen selling may be somewhat restrained.
Factors that could weigh on the euro include the possibility of a U.S. policy rate hike later this year, concerns about stagflation in the European economy, and higher crude oil prices as the Middle East conflict drags on. Factors that could support the euro include expectations of further increases in European interest rates, stable crude oil prices, and hopes for an end to the conflict in the Middle East.