EUR/JPY trades higher around 166.00 amid improved market sentiment

• EUR/JPY edges higher due to the overall positive sentiment in the market post-Fed policy decision.
• The recent inflation data from the Eurozone have bolstered expectations for a potential rate cut by the ECB in June.
• The Japanese Yen saw a surge during the morning hours driven by possible intervention by Japanese authorities.

EUR/JPY edges higher on Thursday as the prevailing positive sentiment in the market provides support for risk-sensitive currencies like the Euro. The pair trades around 166.10 during the European session. This improved risk appetite could be attributed to dovish remarks from Federal Reserve Chairman Jerome Powell on Wednesday. Powell dismissed the likelihood of any further interest rate hikes.

The European Central Bank (ECB) is expected to be dovish as recent inflation data showed that Eurozone inflation held steady in April, as expected. Additionally, the core inflation fell, strengthening bets for a potential interest rate cut by the ECB in June. This could dampen the demand for the Euro, consequently, undermining the EUR/JPY cross.

The HCOB Eurozone Manufacturing Purchasing Managers' Index (PMI) for April posted a reading of 45.7, compared to the preliminary estimate of 45.6 and below March's final figure of 46.1. This latest reading indicates a slightly accelerated pace of decline in the manufacturing sector in the Euro area. The inflow of new orders decreased at a sharper rate, marking the most significant decline so far this year.

In Japan, the Japanese Yen (JPY) initially experienced an increase during the morning hours, driven by speculation of another potential government intervention, marking the second such occurrence this week. However, it later surrendered its gains following the release of insights from Bank of Japan (BoJ) Minutes from the March meeting.

According to Reuters, a member stated that the economy's reaction to a short-term rate increase to around 0.1% is anticipated to be minimal. Several members voiced the opinion that long-term rates should primarily be determined by market forces. Additionally, a few members suggested that the Bank of Japan should eventually contemplate reducing its bond purchasing and downsizing its bond holdings.

The Consumer Confidence Index fell to 38.3 in April from 39.5 in March and came below the market expectations of 39.7. This decline marks the lowest level in three months, reflecting weakened sentiment among households.