Following the Federal Reserve’s decision, the European Central Bank and the Bank of Japan also left interest rates unchanged last week. Both decisions were expected, but each carried important signals for the euro and the yen.
ECB: hold at 2.50%, no promises for December
The ECB kept its deposit facility rate at 2.50% on Thursday, October 29. Policymakers noted that higher bond yields have already tightened financial conditions, doing some of the central bank’s work for it. President Christine Lagarde said the Governing Council is not pre-committing to any path.
Traders trimmed bets on a December hike after the meeting, although money markets still see a meaningful chance of a move. Adding to the uncertainty, Lagarde is set to step down in February, earlier than planned, which raises questions about the bank’s future direction.
Euro reaction: EUR/USD fell to its lowest level since May 2025 on Thursday before recovering to around 1.1195 on Friday, its third straight daily gain, helped by a softer dollar. Weak growth remains a concern: eurozone GDP grew just 0.4% in the third quarter.
BoJ: hold at 1.25%, higher inflation forecasts
The Bank of Japan kept its policy rate at 1.25% on Friday, October 30, but raised its inflation forecasts, a hawkish signal that further hikes remain on the table. Recent data showed a key gauge of service-sector inflation rising 3.7% year-on-year in September.
Yen reaction: The yen strengthened to around 157 per dollar, its third consecutive daily gain, before giving back ground; USD/JPY has since moved back toward 158.00. Japan’s Finance Minister Satsuki Katayama issued a fresh warning about excessive currency moves, a reminder that authorities are watching for possible intervention.
What traders should watch next
- EUR/USD: Eurozone flash October inflation (Wednesday) will shape December ECB expectations. The 1.1200 area is the near-term level to watch.
- USD/JPY: Intervention risk rises as the pair approaches 158–160. Verbal warnings often come before actual intervention.
- EUR/JPY: Traded around 176 after the BoJ decision and remains sensitive to both central banks.
Bottom line: Both the ECB and BoJ kept options open. The euro needs stronger growth or inflation to sustain its rebound, while the yen’s fate depends on whether the BoJ follows through on its hawkish tone, or Tokyo steps in.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice. Trading forex and CFDs carries a high level of risk and may not be suitable for all investors. Market levels quoted are approximate at the time of writing.