The Euro traded with modest gains against the Japanese Yen, with EUR/JPY around 185.80, up 0.05% on the day, supported by expectations of further monetary tightening by the European Central Bank (ECB) and slightly better-than-expected German Retail Sales data, which fell 0.3% month-on-month in April versus expectations for a 0.4% decline [1]. The HCOB Eurozone Manufacturing PMI for May was revised up to 51.6 from the preliminary 51.4, though it remains below April’s 52.2, indicating continued expansion but at a slower pace [1][3]. Eurostat reported that the Eurozone Unemployment Rate held steady at 6.3% in April, missing expectations for a drop to 6.2% [3].
Inflation remains a key concern, with flash estimates showing price pressures easing in Germany but accelerating in France, Italy, and Spain. Inflation in all four countries remains above the ECB’s 2% target, reinforcing market expectations for a 25-basis-point ECB rate hike at the June 11 meeting [1]. The ECB’s consumer expectations survey showed one-year inflation expectations unchanged at 4%, three-year expectations easing to 2.9%, and five-year expectations steady at 2.4% [1]. BNP Paribas projects Eurozone GDP growth to slow from 1.5% in 2025 to 1.0% in 2026 and 1.3% in 2027, with inflation rebounding to 3.0% in 2026 and 3.3% in 2027. BNP Paribas expects two 25-basis-point ECB rate hikes in 2026, with the first hike anticipated in June, pushing the deposit facility rate to 2.5% [2].
Geopolitical tensions are also influencing market sentiment. The Euro wavered against the US Dollar, trading near 1.1650, as mixed Eurozone data and rising tensions in the Middle East weighed on risk appetite [3]. The US and Iran exchanged strikes, and Israel increased operations in Lebanon, adding to uncertainty. The US President Donald Trump is expected to sign a memorandum to extend the ceasefire for 60 days, while Iranian officials threatened retaliation [3].
Technical analysis indicates that EUR/USD remains below the 1.1660 range top, with near-term bullish bias but limited upside momentum. Key resistance levels are at 1.1660, 1.1720, and 1.1790, while support is seen at 1.1625 and 1.1575 [3]. In Japan, the S&P Global Manufacturing PMI was confirmed at 54.5 in May, down from 55.1 in April, and corporate capital spending was flat in Q1 after 6.5% year-on-year growth in Q4 2025, suggesting a slowdown in business investment [1]. Comments from Bank of Japan officials support expectations for policy normalization, but the BoJ remains more cautious compared to the ECB [1].
CONCLUSION
The Euro is being supported by expectations of ECB rate hikes and resilient, though slowing, economic data, but faces headwinds from persistent inflation and geopolitical tensions. Market reaction has been modest, with the Euro holding gains against the Yen and wavering against the Dollar. Forward-looking projections suggest further ECB tightening and gradual Euro appreciation, though risks remain elevated.