The US and EU reached a 15% tariff deal on most EU exports, though disputes remain over whether pharmaceuticals are included, with steel and aluminum facing quotas. The EU offered concessions like buying $750 billion in US energy and investing $600 billion in the US, but European industry groups criticized the deal as unbalanced. The Euro saw a muted response but could strengthen as the ECB’s 2% deposit rate pause may hold, supported by stable inflation forecasts (2.0% for 2025) and positive Eurozone data, including a strong Q1 2025 GDP growth of 0.6% and a rising Composite PMI of 51.0. With expectations of US rate cuts growing, diverging central bank policies may bolster the Euro.

Despite the US-Japan trade deal reducing economic uncertainty, it offers little political protection for Japanese Prime Minister Ishiba, whose leadership faces scrutiny at an informal LDP meeting today that could lead to a leadership contest, with Shinjiro Koizumi and Sanae Takaichi as potential successors. Koizumi supports BOJ independence, while Takaichi’s preference for monetary easing and a weaker Yen could hinder rate hikes if she becomes PM. The BOJ is likely to hold rates steady at its Thursday meeting, with markets awaiting its inflation outlook and hints of future rate hikes, supported by strong economic data like June retail sales, which early reports suggest may show robust consumer spending.

The Australian Dollar is gaining strength due to positive market sentiment following US-Japan and US-EU trade deals, with expectations of a US-China tariff truce extension further boosting optimism. Australian super funds, managing A$4.1 trillion in assets, are likely increasing AUD hedging, supporting the currency’s rise to yearly highs. While the upcoming 2Q CPI report, expected to show inflation easing to 2.2% and core at 2.7%, may prompt an RBA rate cut in August, Governor Bullock’s recent comments downplaying aggressive cuts and highlighting a stable labor market despite a 4.3% unemployment rate have reduced expectations for multiple rate cuts, with markets now awaiting clearer signs of slowing inflation or weaker economic data.