Analysts increasingly expect the European Central Bank to raise interest rates rather than cut them, with no hikes anticipated before June next year, as ECB members like Martins Kazaks and Gediminas Simkus argue current rates are appropriate given stable 2% inflation and a non-deteriorating economy. This stance contrasts with the U.S. Federal Reserve’s potential dovish guidance, which could push the Euro to $1.18-$1.20, with one major European bank predicting a rise to $1.20 by year-end if the Fed cuts rates by 75 basis points. Meanwhile, Germany’s ZEW Survey Expectations for September rose to 37.3, beating estimates and signaling growing optimism among financial experts about Germany’s economic recovery, despite challenges like global demand and trade policy uncertainties.

The Bank of Japan is likely to maintain its current policy rate of 0.5% at its September 2025 meeting, awaiting clarity on Japan’s political leadership following Ishiba’s resignation. Despite political uncertainty, steady economic growth, rising wages, and reduced trade risks bolster the case for a potential rate hike in October or December, with a Bloomberg survey favoring a hike by January. The Liberal Democratic Party leadership race, particularly a potential Shinjiro Koizumi victory, could support BOJ tightening, strengthening the yen, while a Sanae Takaichi win might weaken it due to her preference for continued easing.

The Federal Reserve is expected to cut rates by 25 basis points at its next meeting, with further cuts anticipated in October and December, while the Reserve Bank of Australia is likely to maintain its 3.6% rate in September, with potential cuts in November or early next year due to improving consumer spending and inflation nearing the 2–3% target. The Australian dollar is climbing to yearly highs, supported by rising Australia-US yield spreads and bullish bets from macro hedge funds via call options against major currencies like the USD, CAD, and CHF. Australia’s superannuation funds are increasing overseas investments and currency hedging, which could bolster the AUD but introduce risks if market volatility spikes. August labor data, due tomorrow, is expected to show stable unemployment at 4.2%, a 67% participation rate, and solid job growth of around 21,000.