When trading the EUR/JPY and GBP/JPY pairs, it’s important to consider rate differentials over political factors. While politics can have an impact on currency movements, interest rate differentials often have a stronger influence.
The European Central Bank (ECB) and the Bank of Japan (BoJ) set interest rates for the Euro and Yen, respectively. When there is a higher interest rate in one country compared to another, investors are more likely to invest in the currency with the higher rate to earn more on their investments. This can cause the currency with the lower interest rate to weaken.
In the case of EUR/JPY and GBP/JPY, the interest rate differentials between the Eurozone and Japan, as well as between the UK and Japan, can play a significant role in determining the direction of the currency pairs. Traders often pay close attention to any changes in interest rates or monetary policy decisions made by the central banks of these countries.
While political events can cause temporary fluctuations in currency prices, rate differentials are generally considered to have a more lasting impact on the forex market. By staying informed about interest rate decisions and economic data releases, traders can make more informed decisions when trading EUR/JPY and GBP/JPY.