Since the ECB’s June rate cut, policymakers are cautiously maintaining the current 2% interest rate, with Eurozone markets expecting just one more cut in 2025, while US markets anticipate two, supporting the euro’s strength. The EU is boosting defense capabilities by streamlining regulations, aiming to speed up defense project approvals to 60 days, which could positively impact the euro. ECB President Lagarde is advocating for reforms to position the euro as a stronger alternative to the dollar, while recent German economic data, including a strong ZEW Survey Expectations score of 47.5, signals growing confidence and potential recovery from nearly three years of stagnation.

The Bank of Japan maintained its target rate at 0.50% and announced a gradual reduction in Japanese Government Bond purchases starting April 2026, aiming for ¥2 trillion by March 2027, with flexibility to adjust based on market conditions. While signaling openness to future rate hikes if inflation and economic conditions improve, BOJ Governor Ueda noted the yen’s weakness is increasingly driving domestic inflation, which remains above the 2% target. Rising oil prices, partly due to the Israel-Iran conflict, could further push inflation, potentially forcing tighter policy. Japan’s economy faces challenges from a widening trade deficit (-¥637.6bn in May) and a -1.7% drop in exports, raising recession risks amid ongoing US-Japan trade talks and US tariffs.

The Australian Dollar uptrend remains intact despite a rejection at the 61.8% retrace level, driven by Middle East tensions, with potential for resumed growth if the conflict cools and focus shifts to U.S. fiscal concerns. Positive Chinese economic data and optimism around U.S.-China trade talks are supporting the Australian dollar, alongside a $187.2 billion takeover bid for Santos by an Abu Dhabi-led consortium, though a regulatory block could cause a temporary dip. Recent Australian data indicates below-trend economic growth, influenced by both global and domestic factors.