German inflation rose to 2.4% in September, surpassing expectations due to higher service costs and smaller energy price declines, contributing to a eurozone-wide trend where inflation hit 2.2%, above the ECB’s 2% target. ECB policymakers are divided, with some advocating for steady rates and others open to future easing, though decisions will remain data-driven. Despite short-term inflationary pressures from energy, Germany’s disinflation trend continues, with inflation expected to stabilize above 2%. The ECB remains cautious, while the eurozone benefits from a stronger euro and mitigated tariff impacts, though trade and geopolitical risks persist. Long-term, Germany’s reforms and infrastructure spending may boost eurozone growth, supporting a bullish euro against the dollar.

The Bank of Japan is considering further interest rate hikes, with two of nine policy board members advocating for an immediate increase to address persistent inflation, while the majority prefers caution due to uncertainties around the U.S. economy. The BOJ plans to reduce its government bond purchases to ¥3.3 trillion monthly and offload some exchange-traded funds, signaling a gradual shift from ultra-loose monetary policy. Market expectations for an October rate hike have risen, with a 68% probability, supported by improving business confidence in Japan’s Tankan survey and comments from BOJ board member Asahi Noguchi, indicating stronger economic and price risks. These moves are expected to support the yen by tightening monetary policy and reducing bond market pressure.

The Reserve Bank of Australia maintained the cash rate at 3.6%, as inflation, particularly in services, is not cooling as quickly as expected, with the 2.5% target still the priority. Despite resilient growth and a tight labor market, the RBA is adopting a cautious, data-driven approach, reducing expectations for near-term rate cuts, with markets now seeing less than a 40% chance of a cut in November and analysts predicting gradual easing into 2026. Rising labor costs and robust consumer spending support economic confidence, but softening job market trends and global risks like U.S. tariffs and weaker Chinese demand could prompt a policy shift if growth falters, while the Australian dollar strengthens due to slower easing expectations and potential rate divergence with the U.S.