European equity markets advanced further as investor sentiment brightened on the back of encouraging economic data and key developments worldwide. On Friday, the Euro surged to a five-week high, bolstered by positive Purchasing Managers' Index (PMI) readings across major economies. Meanwhile, the Bank of Japan (BoJ) made headlines by raising its short-term interest rate by 25 basis points to 0.5%, marking its third rate hike in the current tightening cycle and reaching the highest level in 17 years.
The Euro's ascent was driven by promising PMI figures that exceeded expectations, providing a strong signal of economic recovery within the region. As a result, the EUR/USD pair gained bullish momentum, trading near the 1.0500 level. Across the Channel, the Pound Sterling also gathered strength, supported by better-than-expected preliminary January PMI data from the UK. The currency's rise was further fuelled by shifting market focus to upcoming macroeconomic data releases from the United States.
In Japan, the BoJ's decision to increase its short-term interest rate was aligned with the BoJ-Government accord, reflecting a strategic move to combat inflationary pressures. The USD/JPY pair subsequently tested the lower end of the 155 level following this announcement. The BoJ's rate hike highlights its commitment to steering monetary policy towards stabilizing prices and fostering sustainable economic growth.
Elsewhere, the European Union indices experienced a slight decline of 0.2% on the day, despite positive PMI results hinting at gradual improvements in economic activity. While consumer discretionary and materials sectors emerged as market leaders, the telecom and industrials sectors lagged behind. Concurrently, Asian markets closed with mixed results; however, the Hang Seng index outperformed with a notable gain of 1.9%.
In the United States, President Trump's suggestion of hesitancy regarding imposing tariffs on China injected optimism into global markets, enhancing risk appetite among investors. Market participants closely watched these developments as they continued to assess potential impacts on trade relations and economic growth prospects.
Adding to the day's events, European Central Bank's Cipollone from Italy was scheduled to speak at 06:00 (IT), drawing attention to potential insights into monetary policy directions within the Eurozone.