The euro remains above its 50-day moving average, driven by expectations of potential U.S. Federal Reserve rate cuts if economic data weakens, though a U.S. government shutdown has limited official data, stalling decisive movements. Private sector reports, like the ISM services and ADP employment data, suggest economic slowdown and persistent inflation concerns. Meanwhile, ECB President Christine Lagarde expressed confidence in the euro area’s stable inflation near 2%, indicating no immediate need for policy changes. The Swiss National Bank significantly increased euro purchases in Q2 2025 to counter Swiss franc appreciation, shifting reserves to favor the euro over the dollar, influenced by U.S. tariffs and trade tensions, potentially signaling a broader trend that could further weaken the dollar.

Sanae Takaichi’s election as the leader of Japan’s Liberal Democratic Party positions her to become Japan’s first female prime minister, representing the party’s conservative wing and advocating for aggressive economic stimulus inspired by Abenomics. Her administration is expected to push for continued low interest rates and significant fiscal spending, potentially weakening the yen further and delaying Bank of Japan rate hikes, though some analysts believe the BOJ may still tighten policy due to persistent inflation above the 2% target and a weakening yen nearing 150 per dollar. Despite her preference for monetary easing, the BOJ’s independence and economic indicators like corporate profits and labor shortages could drive gradual rate increases, with a critical window for a hike in October or January, as later decisions may be complicated by budget planning and smaller wage hikes. Key economic data, including household spending, current account balance, and the Bloomberg Japan Economic survey, will be released this week, providing further insight.

The Australian dollar is expected to start the week with a cautiously optimistic outlook due to recent U.S. economic data weakening the U.S. dollar, amid the ongoing U.S. government shutdown. Stronger Australian economic data and a slower, more cautious approach to monetary easing by the Reserve Bank of Australia have supported Aussie, with expectations of fewer Federal Reserve rate cuts in the U.S. further boosting its near-term prospects. However, risks like high domestic inflation, potential U.S. tariffs, and weaker Chinese demand could reverse these gains if economic momentum falters. Modest growth in August household spending (5.0% YoY vs. 5.2% forecast) suggests softening consumer demand, increasing the likelihood of an RBA rate cut in November. Meanwhile, a steadily strengthening Chinese yuan, seen as a strategic move in trade relations, supports Aussie as a yuan proxy. Key Australian data releases this week, including consumer confidence and inflation expectations, along with RBA officials’ testimony, will be closely watched.