Euro outpaces major currency peers as French bond yields extend decline

• Near 176.10: Euro surges against Japanese Yen as French bond yields ease.
• Moody’s decision to retain the Aa3 rating with a negative outlook boosted the appeal of French bonds.
• Unchanged interest rates are expected from both the ECB and the BoJ this week.

The Euro (EUR) is up 0.25% against the Japanese Yen (JPY), near 176.10. During the European session at the start of the week, it leads its major currency peers. Following several weeks of underperformance, the Euro is recovering as a further decline in French bond yields provides relief.

At the time of writing, French 10-year bond yields stand near 4.99%, down 0.5%, despite having recouped most of their opening decline. They have retreated 3% from last week's 5.14% peak, their highest level in more than two decades.

Aa3 retained: Moody’s decision lifts Euro and French bonds

France “got a boost on Friday night as Moody’s defied market expectations and maintained their Aa3 rating (negative outlook) on the sovereign.” That was the assessment from analysts at Deutsche Bank. Although “the expected one-notch cut would only have taken it in line with S&P’s A+, so shouldn’t have been too destabilising,” they said, retaining the rating offered some marginal relief. Describing the immediate market response, Deutsche Bank noted that “the Euro spiked a couple of tenths very late on Friday immediately after the news and is +0.13% higher this morning, with French bond futures rising nearly three-quarters of a point.”

Monetary policy decisions will be key drivers for the Euro and the Japanese Yen this week. The European Central Bank (ECB) announces its decision on Thursday, followed by the Bank of Japan (BoJ) on Friday.

ECB and BoJ: Rate pauses expected before further rises

Upcoming policy meetings will dominate market attention for the rest of the week, according to analysts at Danske Bank, as “focus turns to interest rate decisions from the ECB on Thursday and the Bank of Japan on Friday.” Danske Bank says it “expects both to keep interest rates unchanged before resuming rate hikes later this year,” pointing to a short-term pause in tightening while the broader outlook still envisages further increases.

Also on investors' agenda later this week are October's preliminary German Harmonised Index of Consumer Prices (HICP) figures and Japan’s Tokyo Consumer Price Index (CPI) data.