When it comes to trading EUR/JPY and GBP/JPY, it’s important to pay attention to rate differentials. While politics can have an impact on currency pairs, rate differentials often play a bigger role in determining their movements.
Rate differentials refer to the difference in interest rates between two countries. When one country’s interest rates are higher than another’s, investors are more likely to invest in that country’s currency, causing it to appreciate. This is because higher interest rates offer a better return on investment.
In the case of EUR/JPY and GBP/JPY, the interest rate differentials between the eurozone and Japan, and between the UK and Japan, respectively, can have a significant impact on the value of these currency pairs. For example, if the European Central Bank raises interest rates while the Bank of Japan keeps rates steady, the EUR/JPY pair is likely to appreciate as investors flock to the higher-yielding euro.
On the other hand, political events can also influence the value of these currency pairs. However, rate differentials tend to have a more consistent and predictable impact on their movements. By keeping an eye on interest rate decisions and economic data releases from the respective central banks, traders can make more informed decisions when trading EUR/JPY and GBP/JPY.