ECB Governing Council member Joachim Nagel reports that Eurozone data align with the ECB’s projections, supporting unchanged interest rates until the December review amid uncertainties. Markets have narrowed expectations for ECB-Fed policy divergence after Fed Chair Powell tempered December cut hopes, pressuring EURUSD lower, though the 1.1392 support level should hold without new catalysts. Analysts at some major banks view the euro as undervalued by about 1%, with neutral positioning poised for rallies on weak U.S. jobs data; they forecast ECB rates steady until mid-2026 while the Fed eases, driving EURUSD to $1.18–$1.20 by year-end and up to $1.26 by Q3 2026, aided by improved European growth outlooks and reduced global risks. Upcoming data include September PPI (forecast flat MoM at 0.0%, YoY -0.2%, signaling easing deflation), finalized October HCOB Services/Composite PMIs, and German factory orders (MoM +0.9%, YoY -4.1%).

PM Sanae Takaichi’s new national growth strategy, due next summer, stressed cautious monetary tightening and fiscal expansion, signaling prolonged ultra-loose policies and delaying BOJ rate hikes; markets reacted negatively, driving the yen to fresh lows against the dollar as traders sold it for carry trades. Finance Minister Satsuki Katayama issued urgent verbal warnings on currency moves, capping USDJPY amid global equity sell-offs, while two large US investment houses see no near-term intervention—last seen in 2024 at 158–162—unless volatility spikes. BOJ minutes showed a 7–2 vote to hold rates at 0.5%, with dissenters pushing hikes to anchor 2% inflation; Governor Ueda, facing his first split, signaled a potential December hike if wage momentum builds, as labor aims for >5% increases—September data Thursday (expected 2.5% YoY scheduled pay) will be key.

The Reserve Bank of Australia held its cash rate steady at 3.60% this week, as widely expected, citing persistent core inflation, robust household spending, and a resurgent housing market as reasons to remain cautious on further easing amid economic uncertainty. With recent data signaling ongoing price pressures and no clear signals on future moves, markets see little chance of a December cut without sharper cooling in inflation and demand. The Australian dollar showed little reaction, staying weak amid broader risk-off sentiment fueled by AI bubble fears—highlighted by Michael Burry’s $1 billion+ put options on Nvidia and Palantir, plus bubble warnings from Morgan Stanley and Goldman Sachs CEOs—along with worries over the prolonged U.S. government shutdown. Unless risk aversion intensifies, AUDUSD is likely to stabilize.