The European Central Bank is likely to cut interest rates on Thursday to counter trade tensions and slowing economic growth, as inflation nears the ECB’s 2% target. Market expectations suggest a total of 56 basis points in rate cuts this year, potentially lowering rates to 1.75%, with the ECB nearing the end of its rate-cutting cycle. As the ECB eases, the Fed may also begin loosening policy later in 2025, potentially narrowing the interest rate gap and supporting the euro. The EU has criticized Trump’s proposed 50% tariffs on steel and aluminum, warning of retaliatory measures if trade talks fail.

The Yen has been gaining strength from safe-haven flows as markets react to President Trump’s proposed tariff hike on steel and aluminum from 25% to 50%, highlighting ongoing trade tensions with China. The Bank of Japan is preparing for higher interest rates by setting aside full provisions for bond transaction losses, signaling a shift from ultra-loose monetary policy, which could boost Yen demand as higher Japanese government bond yields attract capital. However, former BOJ board member Makoto Sakurai suggests that if JGB yields surge, the BOJ may pause its gradual reduction of bond purchases, while Governor Ueda’s cautious remarks indicate that trade uncertainties and economic impacts could delay rate hikes until late 2025, pending clearer data on business investment and wage growth.

The Australian dollar is attempting to hold gains above its 200-day moving average amid broad U.S. dollar weakness, but caution persists due to China’s Caixin Manufacturing PMI slipping into contraction and dovish Reserve Bank of Australia Minutes suggesting a potential 50bps rate cut as a buffer against global trade risks. Australia’s Q1 2025 GDP is expected to grow 0.4% quarter-on-quarter, down from 0.6%, with modest improvement forecast in coming quarters, supported by potential further RBA easing to boost consumer demand and housing. However, weaker-than-expected Q1 company profits and a wider current account deficit may temper business investment, though a stronger-than-expected inventory build offers a slight boost to GDP.