The Euro plummeted in July due to robust US economic data, a hawkish Federal Reserve, and tensions over a new US-EU trade deal, but a weaker-than-expected US jobs report last Friday sparked a sharp rebound as hopes for earlier Fed rate cuts resurfaced. Some analysts speculate the Fed may opt for a significant 50bps rate cut in September if labor markets weaken further, contrasting with the ECB, which is nearing the end of its easing cycle as Eurozone inflation stabilizes. Despite resilient 0.1% growth in Q2, the Eurozone faces challenges from global trade tensions, with a sharp drop in August’s Sentix Investor Confidence to -3.7, driven by a 15% EU import tariff, particularly hitting Germany’s sentiment, signaling potential pressure on the ECB to reassess its cautious stance.

Last Friday’s disappointing US jobs report triggered a dollar sell-off, shifting Federal Reserve policy expectations and weakening the USD against the yen, with USDJPY trading defensively this week. The Bank of Japan June meeting minutes reiterated plans for potential rate hikes if US tariff risks remain manageable, with a focus on predictable reductions in JGB purchases to maintain market stability; markets are more focused on the upcoming July meeting summary for fresh policy insights. The BOJ raised its inflation forecasts for 2025–2027, citing higher food prices, and slightly increased its 2025 growth forecast, though risks remain. Despite Governor Ueda’s dovish tone, analysts see hawkish signals in BOJ’s outlook, with 42% of economists predicting an October rate hike, driven partly by yen weakness, though political uncertainty and Japan’s fiscal challenges, including a potential extra budget to counter US tariffs, could complicate policy normalization.

Last Friday, G10 currencies, particularly the Yen and Euro, rallied against the dollar due to softer-than-expected U.S. labor data, raising hopes for Federal Reserve rate cuts in September, though Trump’s tariff announcements tempered gains. Australian economic indicators showed strength, with July’s Melbourne Institute Inflation rising to 2.9% year-on-year, June retail sales surging 1.2% month-on-month, and building approvals jumping 11.9%, signaling robust consumer spending and a potential housing sector recovery despite high interest rates. While markets anticipate two RBA rate cuts this year, strong economic data may lead the RBA to pause, with analysts expecting a cautious stance at the upcoming August meeting, supported by upward revisions in July’s S&P Global Australia PMI data.