The European Central Bank is maintaining a cautious “wait-and-see” approach, holding interest rates steady at 2.15% for main refinancing and 2% for the deposit facility, with inflation at the 2% target and likely to dip lower due to a strong euro and falling energy prices. In contrast, the U.S. Federal Reserve is adopting a more dovish stance, which may support the euro’s strength in the near term. However, political turmoil in France, where the government faces a potential collapse due to opposition to budget cuts and tax increases, could undermine eurozone stability and pressure the euro if borrowing costs rise significantly. Despite these risks, ECB President Lagarde remains optimistic about resilient euro-area growth and minimal impact from U.S. tariffs, while historical trends suggest French political volatility may have short-lived market effects.

Tokyo’s August inflation data, a key indicator of Japan’s nationwide trends, is expected to dip slightly due to temporary energy subsidies, though the core-core inflation rate (excluding fresh food and energy) should remain high at around 3.0% year-on-year. This supports expectations for a Bank of Japan rate hike, with traders now pricing in a 43% chance of an October hike, bolstered by the BOJ’s hawkish outlook and narrowing U.S.-Japan yield spreads. Prime Minister Shigeru Ishiba’s rising approval ratings (57.5%) suggest growing political stability, potentially reinforcing the BOJ’s normalization path, though a record JPY 32.4 trillion debt financing request could complicate further rate hikes due to fiscal constraints.

The Reserve Bank of Australia’s August meeting minutes suggest more interest rate cuts are likely in the coming year to achieve inflation and employment targets, with markets expecting at least two cuts by early 2026. The Australian dollar may face downward pressure against the US Dollar, but long-term AUDUSD gains are supported by China’s stimulus measures, which boost demand for Australian commodities, and concerns over the USD’s credibility due to U.S. political and policy uncertainties. Upcoming Australian CPI data and China’s industrial profits report could influence RBA’s next steps, with analysts anticipating no rate cut in September but potential cuts in November 2025 and February 2026.