The euro is holding remains well supported, most recently on the back of a weakening US dollar after disappointing US jobs data increased expectations for Federal Reserve rate cuts. In Europe, inflation rose slightly to 2.1% in August, reinforcing predictions that the European Central Bank will maintain current interest rates at its upcoming meeting, though ECB officials have differing views on future rate adjustments. European stocks rebounded, with tech and luxury sectors leading gains, but bond markets remain cautious amid fiscal concerns, particularly in France, where political uncertainty looms ahead of a confidence vote. Eurozone economic activity shows modest growth, with manufacturing improving but Germany’s economy facing challenges from stagnating manufacturing and contracting services.

Political uncertainty in Japan, driven by speculation over Prime Minister Shigeru Ishiba’s future and resignations within his party after a poor election performance, is weakening the yen and unsettling financial markets. The Nikkei 225 and Topix indices fell, with the Nikkei down 0.88% and Topix down 1.07%, while bond yields hit near-record highs amid fears of increased fiscal spending. Despite a meeting between Ishiba and Bank of Japan Governor Kazuo Ueda temporarily strengthening the yen, the BOJ’s monetary policy remains unchanged, with rates expected to stay at 0.5% at the next meeting. Upcoming wage data and potential leadership changes, including a possible successor favoring low rates, add further complexity to Japan’s economic outlook.

The Australian dollar remained stable, supported by stronger-than-expected economic growth of 0.6% in Q2, surpassing forecasts and driven by increased household spending. Despite this, the S&P/ASX 200 fell 1.8%, with financials and tech stocks leading the decline. Robust growth has led markets to scale back expectations for Reserve Bank of Australia rate cuts, with a quarter-point cut still anticipated in November, while bond yields rose to a one-and-a-half-month high. RBA Governor Michele Bullock highlighted rising consumer spending due to easing inflation and higher house prices but noted global trade uncertainties, particularly U.S. tariffs, as a concern. Sustaining growth may hinge on improving productivity, which remains low at 0.2% annually, challenging the RBA’s inflation target.