The European Central Bank kept its deposit rate at 2% as expected, awaiting clarity on US-Euro trade talks and offering no hints on future rate moves due to uncertain tariff outcomes. Eurozone economic data shows growing momentum, with the Composite PMI rising to 51.0 in July, driven by stronger manufacturing and services sectors, alongside robust Q1 2025 GDP growth of 0.6%. Analysts suggest the ECB may pause rate cuts longer than anticipated, with some predicting a shift toward rate hikes if inflation rises and trade uncertainties ease. A potential 15% US-EU tariff deal could strengthen the euro by reducing economic risks, potentially pushing the Euro toward 1.1900–1.2000, especially if US rate cut expectations grow.

The Bank of Japan’s Deputy Governor Shinichi Uchida noted that a US trade deal has reduced economic uncertainty, boosting market optimism for potential rate hikes, though USDJPY weakened. Persistent inflation, with Tokyo’s July CPI at 2.9% and core measures steady at 3.1%, supports the BOJ’s policy normalization, but political uncertainty following the LDP’s electoral setback and potential leadership change could impact monetary policy. A possible shift to Sanae Takaichi as PM, who favors monetary easing and a weaker yen, might pressure the BOJ to delay rate hikes, while proposed consumption tax cuts could raise bond yields and further weaken the yen.

The Australian Dollar gained strength due to improved market optimism following a US-Japan trade deal, raising hopes for similar agreements with Europe and China. RBA Governor Michele Bullock’s recent comments reduced expectations for aggressive rate cuts, emphasizing a resilient labor market despite a rise in unemployment to 4.3% in June, which aligns with RBA forecasts. She highlighted that inflation is gradually approaching the 2.5% target, though the upcoming Q1 core inflation may be slightly below the expected 2.6%, and cautioned against overreacting to single data points. Bullock’s hawkish stance, noting the RBA’s restrained rate hikes in 2022-2023, led to higher Australian bond yields and a stronger AUD, with markets now less certain about an August rate cut and scaling back expectations for consecutive cuts without clearer signs of economic slowdown.