Could Eurozone’s Economic Slowdown Drag the Euro Down Against a Resurgent Yen and USD?

The Euro (EUR) faced renewed pressure against both the Japanese Yen (JPY) and the US Dollar (USD) on Thursday, at 08:31 PM +04, as the EUR/JPY pair dropped 0.5% to hover around 163.00, marking its second consecutive session of declines, while EUR/USD held steady near 1.1200 with minor gains. This pullback in EUR/JPY reflects disappointing Eurozone growth data and a surge in safe-haven demand for the Yen, driven by global trade uncertainties, while the USD’s recent resilience, despite a dip in the DXY to 100.88, adds further complexity to the Euro’s challenges amid a cautious market environment.

Eurozone economic growth in Q1 2025 was revised down to 0.3% from an initial estimate of 0.4%, despite a robust 2.6% month-over-month surge in March Industrial Production. The annual growth rate remained steady at 1.2%, but the softer GDP figure has heightened concerns about the region’s economic momentum after two years of downturns driven by high energy prices linked to the Ukraine crisis. This data keeps the European Central Bank (ECB) under pressure to maintain a dovish stance, especially as inflation eases, potentially necessitating further monetary support to bolster the faltering recovery across the 20-nation bloc.

The Japanese Yen has gained traction as a safe-haven asset amid persistent global trade tensions, particularly involving the US, where speculation of a weaker Dollar policy to address trade imbalances has fueled a rally in Asian currencies. The US Dollar, despite its recent dip, showed resilience earlier in the week, with the DXY climbing past 101.00 on Wednesday, supported by rising US Treasury yields (10-year at 4.525%). US-Japan trade negotiations aiming for a deal by June further support the Yen, while the USD benefits from a shift away from riskier assets, adding pressure on the Euro, which struggles to maintain its footing against both currencies.

The broader economic context underscores the Eurozone’s vulnerabilities, with global growth forecasts reflecting a slowdown. The Eurozone’s 2025 growth projection stands at a modest 0.8%, while the US GDP contracted by 0.1% in Q1, narrowing the growth gap between the two regions. The European Commission’s efforts to negotiate the removal of US tariffs on cars, aluminum, and steel—currently at 25% and 10% on other goods—could offer relief, but uncertainty persists. As the Eurozone awaits updated growth forecasts next week, the Euro’s near-term path against the Yen and USD will hinge on global risk sentiment and the ECB’s policy response, with key levels around 163.00 for EUR/JPY acting as a short-term pivot.