Weak U.S. economic data has raised expectations for Federal Reserve cuts rates later this year, while the ECB, after eight rate reductions, may pause as inflation nears 2% and unemployment stays low. The ECB’s July meeting is likely to maintain current rates, with its latest bulletin forecasting steady euro area GDP growth (0.9% in 2025) and inflation at 2% in 2025, though trade tensions and a stronger euro pose risks. In Germany, manufacturing PMI shows signs of stabilization despite ongoing contraction, while a sharp drop in services PMI (47.1 in May) threatens near-term growth.

Recent weak US economic data have increased expectations for two Federal Reserve rate cuts in late 2025, but the yen struggles to gain traction as doubts persist about the Bank of Japan’s ability to tighten policy. The BOJ’s cautious approach to reducing Japanese Government Bond purchases, coupled with weak demand for long-term bonds, has led Japan’s Ministry of Finance to cut issuance of 20-, 30-, and 40-year bonds. Geopolitical tensions and uncertainty over US-Japan trade talks, with a July 9, 2025, tariff deadline approaching, further pressure the yen and complicate BOJ policy. However, Japan’s June PMI data shows improvement, with manufacturing returning to growth (50.4) and services expanding (51.5), signaling economic stabilization, though the recovery remains fragile and BOJ rate hike expectations are low without a favorable trade deal resolution.

Australia’s June 2025 preliminary PMI data shows modest economic expansion, with the Composite PMI at 51.2 (up from 50.5), Manufacturing PMI steady at 51.0, and Services PMI at 51.3 (up from 50.6). Following the RBA’s rate cuts in May 2025, these figures suggest a positive but cautious economic response, supporting the RBA’s gradual monetary easing approach. The RBA will consider these PMIs and upcoming inflation data at its next meeting to decide on further rate adjustments, with markets expecting three more cuts in 2025, potentially lowering the cash rate to 3.10%.