Forex Today: Japanese Yen weakens on BoJ, Euro awaits inflation data

Here is what you need to know on Tuesday, October 31:

The Japanese Yen came under heavy selling pressure early Tuesday following the Bank of Japan's (BoJ) monetary policy announcements. Eurostat will release the Harmonized Index of Consumer Prices (HICP) data for October later in the session. The US economic docket will feature August Housing Price Index and the Conference Board’s Consumer Confidence Index data for October ahead of the Federal Reserve’s all-important monetary policy decisions on Wednesday.

The improving market mood in the second half of the day weighed on the US Dollar (USD) on Monday, with the USD Index closing in negative territory. Re-escalating geopolitical tensions, however, helped the currency gather strength during the Asian trading hours on Tuesday and the USD Index recovered toward 106.50, erasing a large portion of Monday's losses. Israel Defense Forces said late Monday that it will continue to expand its ground incursion into Gaza and Israeli Prime Minister Benjamin Netanyahu stated that he will not agree to a cease-fire.

The BoJ left the policy settings unchanged after the October meeting as expected, maintaining the interest rate and the 10-year Japanese government bond (JGB) yield target at -0.1% and 0%, respectively. Some experts were anticipating the BoJ to lift the 10-year yield ceiling from 1% to 1.25% after strong inflation readings. "The Bank will maintain the target level of 10-year Japanese government bond (JGB) yields at around zero percent, it will conduct yield curve control with the upper bound of 1.0% for these yields as a reference and will control yields mainly through large-scale JGB purchases and nimble market operations," the BoJ said in its statement. USD/JPY gathered bullish momentum on the BoJ's inaction and was last seen gaining more than 0.5% on the day above 150.00.

In the meantime, the data from China revealed that the NBS Manufacturing PMI declined to 49.5 in October from 50.2 in September, while the NBS Non-Manufacturing PMI edged lower to 50.6 from 51.7.

EUR/USD advanced to a fresh six-day high above 1.0600 on Monday but lost its traction early Tuesday. Annual HICP inflation in the Euro area is forecast to soften to 3.2% from 4.3% in September. The data from Germany showed that inflation, as measured by the change in the Consumer Price Index (CPI), declined to 3.8% on a yearly basis in October from 4.5% in September. This reading came in below the market expectation of 4%. 

Pressured by the negative shift seen in risk mood, GBP/USD retreated below 1.2150 after rising toward 1.2200 on Monday.

NZD/USD stretched lower following the disappointing Chinese data and was last seen trading in negative territory below 0.5850. In the early trading hours of the Asian session on Wednesday, Statistics New Zealand will publish labor market data for the third quarter. 

Following the bearish action in the European session, Gold reversed its direction and rose above $2,000 in the American trading hours on Monday. XAU/USD, however, struggled to preserve its bullish momentum and declined toward $1,990 early Tuesday.