Eurozone inflation rose slightly to 2.2% in September, aligning with the ECB’s target, but disinflation may be slowing, reducing the likelihood of further rate cuts as ECB officials view current policy as supportive. The euro is somewhat bolstered by this stance, though its gains are limited by the region’s weak growth and fiscal challenges, with markets needing stronger German stimulus or improved Eurozone growth for a confident euro rally. A potential Trump-Xi meeting at the APEC Summit could ease trade tensions, supporting risk-on sentiment and EURUSD, while geopolitical risks, like Russia’s attacks on Ukraine and new EU sanctions, weigh on the euro. ECB Chief Economist Philip Lane highlighted risks to eurozone banks from tighter U.S. dollar funding, and consumer confidence remains fragile, with October’s reading expected to hold at -14.9, reflecting cautious sentiment and weak domestic demand.

Prime Minister Takaichi’s new economic package, emphasizing targeted support over large-scale spending, suggests a cautious fiscal approach that could mildly support the yen and keep USDJPY stable or slightly lower, provided aggressive deficit financing is avoided. However, uncertainty about the package’s size and funding could drive USDJPY higher if significant bond issuance is announced. The Bank of Japan sees no urgent need for an interest rate hike at its October 30, 2025, meeting, with a possible hike eyed for December or January 2026, depending on economic data and yen movements. One major US investment house notes that Japan’s stronger economic conditions reduce the need for extensive monetary easing, though Takaichi’s Abenomics support adds some uncertainty to the BOJ’s gradual tightening path.

The Australian dollar may gain support from widening AUD10yr-US10yr yield spreads and China’s efforts to strengthen the yuan. Australia’s unemployment rate rose to 4.5% in September, the highest in nearly four years, increasing pressure on the Reserve Bank of Australia for a potential interest rate cut in November, with market expectations for a cut rising to 66%. However, the RBA remains cautious due to persistent inflation, with the upcoming third-quarter inflation report on October 29 being key to further rate decisions. AUDUSD movement may depend on U.S. data signaling a dovish Federal Reserve, while economists predict the RBA’s rate at 3.35% by Q4 2025, with CPI at 2.6% in 2025 and GDP growth of 1.7%.