The EUR/JPY pair is losing strength to around 183.65 during the early European session on Monday. The Japanese yen (JPY) rose against the euro (EUR) amid rising geopolitical tensions in Venezuela. The Sentix Eurozone Investor Confidence report is scheduled for release later on Monday.
The US Army’s Delta Force attacked Venezuela and captured its president, Nicolas Maduro, and his wife on Saturday. US President Donald Trump said early Monday that Washington may launch a second military intervention if Venezuela’s interim president, Delcy Rodriguez, does not respond to their demands. The US attack on Venezuela raises concerns about geopolitical risks, boosting safe-haven currencies such as the Japanese yen (JPY) and acting as a headwind for the pair.
However, the Bank of Japan’s cautious stance on further policy tightening and the lack of a clear timeline for future interest rate hikes may limit the JPY’s upside. Most economists expect the next interest rate hike to be delayed until the second half of 2026, perhaps in October.
However, the European Central Bank kept interest rates unchanged at its December policy meeting, and its forecasts indicate less urgency for further cuts. This, in turn, may provide some support to the euro. ECB President Christine Lagarde indicated that all options remain on the table and there was no discussion of interest rate hikes or cuts at the December meeting, although some economists expect interest rates to remain steady until 2026.
(This story was corrected on 5 January at 04:45 GMT to say, in the third point, that the ECB kept interest rates unchanged last month and indicated they were likely to remain unchanged in 2026, not this month.)
European Central Bank Frequently Asked Questions
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the euro area. The European Central Bank sets interest rates and manages monetary policy for the region. The ECB’s primary mandate is to maintain price stability, which means keeping inflation at around 2%. The primary tool for achieving this is raising or lowering interest rates. Relatively high interest rates usually lead to a stronger euro and vice versa. The ECB’s Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by the heads of the eurozone’s national banks and the six permanent members, including the President of the European Central Bank, Christine Lagarde.
In extreme situations, the ECB can activate a policy tool called quantitative easing. Quantitative easing is the process by which the European Central Bank prints euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. Quantitative easing usually leads to a weaker euro. Quantitative easing is considered a last resort when simply lowering interest rates is unlikely to achieve the goal of price stability. The European Central Bank used it during the great financial crisis of 2009-2011, in 2015 when inflation remained stubbornly low, and also during the coronavirus pandemic.
Quantitative tightening (QT) is the opposite of quantitative easing. It is implemented after quantitative easing when the economic recovery is underway and inflation begins to rise. While in the QE program the European Central Bank (ECB) buys government bonds and corporate bonds from financial institutions to provide them with liquidity, in the QT program the ECB stops buying more bonds, and stops reinvesting the capital owed on the bonds it already holds. It is usually positive (or bullish) for the EUR.
