Recent U.S. data continue to look far more resilient than weak euro-area numbers. Germany returned to modest growth in 2025 after two years of contraction, helped by a big shift toward defense and infrastructure spending, but the recovery remains fragile amid weak exports, a manufacturing slump, and rising Chinese competition. While some see echoes of West Germany’s successful industrial pivot in the 1980s, markets remain unconvinced. The Euro is struggling to gain traction as the euro-area trade surplus narrows, imports outpace exports, and ECB projections point to only around 0.2% GDP growth in Q4 with clear downside risks.

We’ve been seeing some Yen demand on long USD profit-taking and intervention talk, with U.S. and Japanese officials stepping up the jawboning. While the BOJ is likely to stay on hold in the very near term, officials are increasingly signalling that a persistently weak yen could actually bring forward future rate hikes, as depreciation is pushing up import prices and keeping inflation near or above target. For now, wide yield differentials and a gradualist BOJ keep the yen biased weaker, but the growing economic and political costs of a cheap currency mean that further losses raise the risk of a stronger policy response or FX intervention.

Markets are increasingly pricing a possible RBA rate hike by mid-2026, with some economists even flagging February as a risk, though views remain split as others expect rates to stay on hold until inflation proves more persistent. The next key test will be December jobs data (Jan 22) and Q4 inflation (Jan 28) ahead of the Feb 2–3 RBA meeting. AUD upside remains cautious amid sticky US inflation, rising geopolitical risks, and uncertainty around Trump-related developments, while speculators have sharply reduced short positions and now appear to be waiting for fresh catalysts.