The euro dipped toward $1.16 as European bond yields surged, driven by fiscal concerns reminiscent of the 2011 eurozone debt crisis, with German and French 30-year yields hitting decade highs. Germany plans €500 billion in new borrowing by 2029 for infrastructure and defense, while France faces a growing debt burden ahead of a key confidence vote. Eurozone inflation rose to 2.1% in August, above the ECB’s 2% target, fueling expectations of steady interest rates, while European stock markets, especially banks and tech, fell sharply amid global selloffs.

The Yen has come under pressure in recent sessions, driven by political uncertainty in Japan that’s weakening the yen, with former Prime Minister Aso Taro reportedly pushing for a new Liberal Democratic Party leadership election, pressuring Prime Minister Shigeru Ishiba. The Bank of Japan’s Deputy Governor Ryozo Himino reiterated gradual rate hikes but avoided specific timing, lowering market expectations for a year-end hike. In the US, a court ruling declared Trump’s “reciprocal” tariffs illegal, with an appeal deadline looming, adding uncertainty to the dollar. Japan’s economy grew steadily in August, with the services sector driving the Composite PMI to 52.0, though export orders dropped sharply and inflation eased, with businesses cautious on hiring and price increases.

The Australian dollar ended a five-session rally as markets grappled with mixed economic signals. While Q2 2025 showed a smaller-than-expected current account deficit and manufacturing hit a near three-year high, other indicators like a contracting Ai Group Industry Index and a drop in dwelling approvals painted a less rosy picture. The S&P/ASX 200 fell 0.3% to a two-week low, reflecting uncertainty, while rising bond yields and steady job ads reduced expectations for near-term rate cuts. Attention now turns to Australia’s Q2 GDP data and an upcoming speech by RBA Governor Michele Bullock for clues on future monetary policy.