After the FOMC meeting and strong US economic data, G10 currencies weakened against the dollar, with the euro stabilizing after a sharp sell-off pushed its RSI into oversold territory. The euro area economy grew by 0.1% in Q2, beating expectations but masking weaknesses in Germany and Italy, further pressured by new US-EU trade tariffs that could reduce GDP by 0.3-0.5%. Euro zone wage growth is projected to slow to 2.6% in Q1 2026, down from 3.1% in Q4 2025, raising concerns about undershooting the ECB’s 2% inflation target. Despite these challenges, the ECB remains cautious about further rate cuts, preferring to monitor economic developments before acting.

With the U.S. economy showing resilience and strengthening the dollar, attention turns to the upcoming Bank of Japan meeting, where rates are expected to remain steady while the BOJ may raise its inflation outlook. Despite recent data showing robust retail sales and industrial production, indicating economic momentum, the BOJ’s cautious “risk management approach” could signal no immediate rate hikes, potentially weakening the yen if markets perceive a dovish stance. Suntory Holdings CEO Takeshi Ninami urges the BOJ to raise rates to counter yen weakness and inflation pressures impacting daily life in Japan.

Chinese trade negotiator Li Chenggang announced an extension of the US-China trade truce in Stockholm, though US Treasury Secretary Bessent noted that final approval from Trump is pending due to unresolved technical details. No major agreements were confirmed, but both sides appear committed to avoiding escalation, keeping future trade deal possibilities open. Meanwhile, China’s massive Yarlung Zangbo dam project could boost demand for heavy equipment and commodities like steel and cement, potentially benefiting Australia’s economy due to its iron ore exports. Australia’s Q2 CPI data came in below expectations at 0.7% QoQ and 2.1% YoY, supporting expectations for a 25bps rate cut by the RBA in August, with economists noting that inflation is under control and monetary policy may ease further.