• EUR/JPY recovers after over two percent sell-off last week following suspected intervention. 
• Euro grinds higher on Monday following upbeat Services PMI data for the Eurozone. 
• US Treasury Secretary Janet Yellen warns Japanese authorities about intervention. 

EUR/JPY rallies on Monday, trading up over a half a percent in the 165.60s, driven by a stronger Euro (EUR) following an upwards revision to the final estimate for April Eurozone Services PMI. 

Eurozone HCOB Services PMI for April was revised up to 53.3 from a preliminary estimate of 59.9, which itself was higher than the 51.5 of March, according to data from S&P Global and Hamburg Commercial Bank (HCOB). Eurozone Composite PMI was also revised up to 51.3 from a 49.9 preliminary estimate. 

“The euro area’s economic recovery progressed further at the start of the second quarter…as overall business activity growth accelerated to an 11-month high,” said the report from S&P Global HCOB. 

The Japanese Yen, meanwhile, loses ground in most of its major pairs, possibly due to  comments from US Treasury Secretary Janet Yellen over the weekend, which could be construed as mildly critical of intervention. 

Despite refusing to say whether direct currency intervention lay behind the Yen’s recovery last week, including an over two percent rise against the Euro, Yellen did say, “we would expect these interventions to be rare and consultation to take place”.

EUR/JPY upside is likely to be capped by firming expectations that the European Central Bank (ECB) will cut interest rates at its June meeting. These follow comments by the ECB’s Chief Economist Philip Lane who said inflation was coming down in a “timely manner”. 

“Both the April flash estimate for euro area inflation and the Q1 GDP number that came out improve my confidence that inflation should return to target in a timely manner,” he said, adding, “So, as of today, my personal confidence level has improved compared with our April meeting. But of course, more data will arrive between now and June”. 

Lane added the final decision as to when the ECB would cut interest rates would depend on a “month-by-month” assessment of the data and that not all relevant metrics had been collected. A June cut by the ECB would weigh on the Euro since lower interest rates tend to attract less capital inflows. 

Eurozone factory gate prices, which tend to precede wider price trends, continued to deflate according to data from Eurostat on Monday. The figures showed a 0.4% drop in the Eurozone Producer Price Index (PPI) in March, which was less than the 0.7% forecast.  On a year-over-year basis PPI fell 7.8% in March compared to 8.5% in February.