Euro area inflation expectations dipped slightly to 2.6% for one year, while three-year expectations held steady at 2.4%, according to the ECB. ECB officials, including Gabriel Makhlouf and President Christine Lagarde, see no rush to cut interest rates, citing stable inflation and steady growth, though a new 15% US tariff on EU goods could slow economic progress despite reducing trade uncertainty. The euro weakened sharply after a perceived lopsided US-EU trade deal, sparking criticism of European Commission President Ursula von der Leyen and fueling market concerns that the non-binding agreement might unravel, with formal negotiations potentially taking years. European leaders and markets are now grappling with the deal’s implications, but some see it as a chance to push for economic reforms and diversify trade partnerships, while markets may soon focus on the EU avoiding a worse outcome and the possibility of prolonged ECB rate pauses.

Political turmoil in Japan is intensifying as a backlash against a US-Japan trade deal, criticized for threatening sovereignty, fuels speculation that Prime Minister Ishiba may be forced to resign. The deal, involving a disputed $550 billion Japanese investment in the US with unclear profit-sharing terms, has sparked confusion and market concerns, potentially weakening the yen further. As the Bank of Japan adopts a cautious “risk management” approach amid political and economic uncertainties, markets expect steady policy, which could pressure the yen if perceived as dovish. Upcoming June retail sales, industrial production, and housing data, particularly strong retail figures from firms like UNIQLO, may influence yen trading ahead of the BOJ meeting, while business leaders urge rate hikes to counter yen weakness and rising inflation.

Markets are focused on US-China trade talks in Stockholm, with a potential extension of the August 12 truce deadline possibly boosting antipodean currencies like the Australian dollar. Australia’s Q2 CPI, due today, is expected to show inflation easing to 2.2% year-on-year, nearing the Reserve Bank of Australia’s 2%-3% target, potentially paving the way for a rate cut at the RBA’s August 11-12 meeting. However, RBA Governor Bullock’s recent comments on a resilient labor market and gradual inflation decline have tempered expectations for aggressive rate cuts, with markets now less certain of an August cut and scaling back hopes for consecutive cuts without stronger evidence of economic slowdown.