EUR/JPY bounces back from two-month low of 164.80 despite BoJ rate-hike bets surge

• EUR/JPY recovers from 164.80 while the near-term outlook remains uncertain.
• The BoJ is expected to hike interest rates further next week.
• Euro’s near-term outlook has worsened due to multiple headwinds.

The EUR/JPY pair recovers its intraday losses after discovering strong buying interest near fresh two-month low of 164.80 in Thursday’s New York session. The cross rebounds sharply but the near-term outlook remains uncertain on expectations that the Bank of Japan (BoJ) could tighten its monetary policy further next week.

Lately, the Japanese Yen gained more than 6% in the past two weeks as traders unwind short positions significantly.

The BoJ is expected to raise interest rates further due to increasing price pressures. The inflationary pressures have risen due to weak Japanese Yen, which made exports competitive in the global market. Also, the BoJ is expected to tame bond-buying operations, a move to curtail liquidity stimulus.

In the old continent, the Euro’s outlook remains uncertain due to poor Eurozone economic outlook and growing speculation that the European Central Bank (ECB) will cut its key borrowing rates two time more this year.

Eurozone preliminary Composite PMI barely expanded in July, landed at 50.1. Investors expected the PMI to have expanded at a faster pace to 51.1 from the former release of 50.9. The Manufacturing PMI contracted to 45.6, while the Services PMI expanded at a slower pace to 51.9.

ECB officials see market expectations for two more rate cuts this year as appropriate amid confidence that inflation will return sustainably to 2% next year.