The ECB’s June meeting will unveil updated economic projections, likely reflecting weaker Eurozone growth and inflation due to President Trump’s tariffs, with 2025 growth forecasts dropping from 1% to 0.8%, per the IMF. ECB President Lagarde has emphasized a data-driven approach amid stalling business growth, easing wage pressures, and a strengthening Euro, fueling expectations for an eighth 25bp rate cut, potentially lowering the deposit rate to 1.5% by year-end to boost demand. However, Franklin Templeton predicts a pivot to rate hikes by late 2025, anticipating a recovery driven by defense and infrastructure spending, which could reignite inflation in 2026. Germany’s new CDU-Social Democrat coalition is adding political stability, but consumer confidence, as seen in April’s sharp drop to -16.7 and May’s expected Gfk survey decline to -25.7, remains dampened by trade tensions and uncertainty, likely weakening upcoming economic, industrial, and services indicators.

Investors are closely monitoring the upcoming BOJ policy meeting, US-Japan trade talks, and key Japanese and US data releases, alongside US-China tensions, before determining market direction. Rising risk sentiment has weakened the Yen, but there could be renewed Yen demand if positive trade deals emerge, particularly favoring Japan. Such deals could reduce tariff uncertainties, refocusing attention on the BOJ’s potential rate hike resumption in late 2025, maintaining the USD/JPY downtrend. Despite strong yen bullishness in CFTC futures, overbought signals suggest caution. The BOJ is expected to hold its 0.5% rate at the April 30–May 1 meeting, but robust Tokyo CPI underscores persistent inflation, potentially prompting rate hikes later if trade clarity improves. The BOJ’s quarterly outlook may lower growth forecasts but reaffirm gradual rate increases, supported by wage growth and inflation.

The Australian Dollar is showing signs of bottoming, driven by a shift away from USD assets and supported by China’s signaling of accelerated fiscal and monetary stimulus, including potential rate cuts and increased bond issuance, alongside easing US-China trade tensions. Meanwhile, US Secretary Bessent’s comments on de-escalating trade tensions with China further support this trend. However, OIS markets expect the RBA to cut rates in May, prioritizing growth over inflation concerns. S&P Global Ratings cautioned Australia’s AAA credit rating could be at risk if election pledges lead to higher deficits, though polls suggest the Centre-Left Labor government is likely to win the May 3 election, influenced by global anti-conservative sentiment tied to the Trump effect.