The euro is gaining strength against the dollar due to diverging monetary policies, with the Federal Reserve likely to cut rates up to three times this year, while the European Central Bank is expected to hold rates steady, with only a slight chance of one cut before 2026. Political uncertainty in France, including the appointment of Sebastien Lecornu as the new prime minister, is unlikely to significantly impact the euro’s positive momentum. A substantial downward revision of U.S. jobs data by 911,000 has increased expectations for a significant Fed rate cut, potentially boosting the euro further, with forecasts suggesting it could surpass $1.20 by year-end.

The Yen has been focused on narrowing US-Japan interest rate differentials and Japan’s political uncertainty following Ishiba’s resignation. The Bank of Japan is likely to maintain its 0.5% benchmark rate in September, with potential rate hikes in October or December as economic indicators like strong corporate profits and rising wages support tightening, despite political risks. Uncertainty over Japan’s next prime minister, with candidates like Sanae Takaichi favoring expansive policies or Shinjiro Koizumi leaning toward reforms, could impact yen strength and Japanese government bond yields. Robust foreign demand for Japan’s machine tools (up 8.1% year-over-year) contrasts with weaker domestic orders, signaling mixed economic conditions, while hedge funds increasingly bet on yen strength amid expectations of tighter BOJ policy.

The Australian dollar is nearing yearly highs against the US dollar due to a weaker USD following disappointing US jobs data and expectations of a Federal Reserve rate cut in September. Strong Australian economic growth, driven by robust household spending and exports, has reduced the likelihood of a November rate cut by the Reserve Bank of Australia to about 80%. Despite a recent drop in consumer confidence and mixed business sentiment, the RBA is likely to hold rates steady but may consider further cuts if consumer spending weakens, while positive economic data from China supports AUD strength.