The Euro dipped from a four-year high of 1.1919 after the Federal Reserve met expectations with a 25bps rate cut and signaled two more cuts in 2025, triggering a “sell the news” reaction, though the broader uptrend from the February 2025 low of 1.0141 is expected to resume. Eurozone inflation remains sticky, with August CPI at 2.0% and core inflation steady at 2.3%, aligning with the ECB’s target but raising concerns among hawkish ECB officials who see rate hikes, possibly by June 2026, as more likely than further cuts unless economic data weakens. This divergence between the ECB and Fed, alongside persistent inflation and potential U.S. tariff impacts, supports a bullish Euro outlook.

The Bank of Japan is likely to keep its benchmark interest rate at 0.5% this Friday, awaiting clarity on Japan’s political leadership following Ishiba’s resignation, which has weakened investor confidence and the yen. Despite political uncertainty, steady economic growth, rising wages, and reduced U.S.-Japan trade risks support expectations for a potential BOJ rate hike to 0.75% by October or December, with a Bloomberg survey favoring January at the latest. A possible win by Shinjiro Koizumi in the Liberal Democratic Party leadership race could bolster BOJ’s tightening plans, potentially strengthening the yen, while a Sanae Takaichi victory might weaken it due to her support for continued easing.

The U.S. dollar has stabilized after a 25bps Federal Reserve rate cut aligned with market expectations, but risks of further weakening persist due to soft U.S. labor data, shifting central bank rate expectations, and concerns over Fed independence. In Australia, the Reserve Bank of Australia is nearing its 2–3% inflation target while maintaining full employment, with rates likely to stay at 3.6% and potential cuts eyed for November and early 2026, supported by improving consumer demand and lending. However, recent labor data shows a cooling job market, with a surprising 5,400 job loss in August, driven by a 40,900 drop in full-time positions, signaling weaker labor demand and potential risks to consumer spending. Meanwhile, Australia’s superannuation funds are increasing overseas investments and currency hedging, which could support the Australian dollar but introduces new risks if market volatility rises.