Euro-area growth in Q3 2025 was revised up to 0.3%, supported by stronger investment, consumption and solid wage growth, showing the economy has been more resilient than expected despite trade disruptions. This strength may lead ECB hawks to resist near-term easing, though easing pressures could return later as wage growth cools, with the ECB expected to raise its growth outlook next week. At the same time, a new Trump national security strategy signals a sharp shift away from Europe, adding geopolitical and market risks that have historically weighed on the euro and European equities. Looking ahead, upcoming data—particularly German industrial production—are likely to confirm fragile stabilization rather than a strong recovery, with industry still stuck in a low-growth environment.

USDJPY is slightly biased lower over the next one to two weeks, as markets increasingly price in a December BOJ rate hike and expect year-end dollar softness to support further yen strength. A hike from 0.5% to 0.75% is now the base case, helping pull USDJPY off recent highs, with officials seen pushing back against renewed weakness around the 158–160 zone. While Japanese data show moderate inflation, steady nominal wage growth and solid credit conditions, weak real wages and contracting GDP point to soft domestic demand. This supports a cautious BOJ outlook: policy normalization can continue gradually, but markets are likely to temper expectations for aggressive tightening beyond December.

The Australian dollar has climbed to a two-and-a-half-month high as markets anticipate diverging paths between the Fed and the RBA, with U.S. data reinforcing expectations of an imminent Fed rate cut. The RBA is widely expected to keep its cash rate unchanged at 3.6% in December, signaling a likely “hawkish hold” amid persistent inflation pressures, solid domestic demand, and an economy near full capacity, with some markets even pricing in possible rate hikes by 2026. While several analysts argue the next move in rates could be higher, others believe the easing cycle is not over, suggesting inflation may prove temporary and that economists’ forecasts still point to lower rates next year—highlighting a growing gap between market expectations and economist consensus on the AUD and policy outlook.

The euro climbed to a seven-week high as markets increasingly expect a U.S. Fed rate cut before the 10 December meeting, adding to broad dollar weakness. Support also came from slightly stronger eurozone data, steady ECB messaging, and comments from President Lagarde suggesting no imminent policy changes. Many bank analysts expect further EURUSD gains into year-end—helped by seasonal dollar softness, a Fed cut, and a still-undervalued euro—with potential upside if any Russia-Ukraine truce emerges. Meanwhile, the EU advanced plans to deepen its single financial market, and geopolitical tensions remain elevated as European leaders urge Ukraine not to concede without strong U.S. guarantees. Upcoming data include German factory orders, expected to show only tentative stabilization, and the eurozone’s third estimate of Q3 GDP.

BOJ Governor Ueda signaled that Japan’s “neutral” interest rate is likely above current levels, implying room for further hikes, and his comments about weighing a move on December 18–19 boosted market expectations of an imminent increase, pushing JGB yields to their highest since before the global financial crisis. Reports also suggest the government would not stand in the BOJ’s way, reinforcing market pricing of a 90%+ chance of a December hike. While a move this month is now widely expected, markets doubt the BOJ will tighten much further given its cautious stance and the government’s expansionary fiscal plans. A durable drop in USDJPY would still depend more on the Fed easing aggressively; otherwise, Japan’s attempt to maintain loose fiscal policy, negative real rates, and a stronger yen looks unsustainable. Meanwhile, weak October household spending (-3% YoY) underscores soft domestic demand, though the BOJ still expects consumption to stabilize and gradually pick up as wages rise. The data adds complexity but is unlikely to derail a December hike, and consumption trends will be key for Japan’s broader economic recovery.

Australian data shows household spending surged 1.3% in October—more than double expectations—lifting annual growth to 5.6% and signalling strong demand, especially in discretionary areas like clothing, furnishings, hospitality, and entertainment. The strength in spending, alongside rising unit labor costs and signs the economy is hitting capacity limits, reinforces inflation risks and supports the RBA’s decision to pause in December, though major banks now see a February rate hike as increasingly likely. Markets have shifted toward a more hawkish outlook, with bond yields climbing and OIS pricing suggesting higher rates ahead, positioning the AUD as one of the highest-yielding G10 currencies by 2026.

The ECB expects the euro’s recent strength to steadily push eurozone inflation lower over the next three years, with the biggest impact—about a 0.6-point drop for every 10% rise in the currency—felt roughly a year after the move. With the euro already up more than 12% this year, that disinflation could influence future policy debates even as officials signal comfort with current rates near 2%. One major European bank sees the euro gradually appreciating to around $1.20 by late 2026, though gains may be limited if U.S. growth stays strong and tech-driven capital flows continue supporting the dollar. Meanwhile, U.S.–Russia talks over a potential Ukraine peace deal ended without a breakthrough, and Russia’s battlefield advantage may be strengthening Moscow’s demands in negotiations.

Japan’s metalworkers’ union JCM, representing two million employees, plans to demand at least a ¥12,000 monthly base-pay hike—matching last year’s record request and aligning with Rengo’s push for wage gains of 5% or more. Strong corporate profits and policy support give unions confidence that companies can absorb higher labour costs. BOJ Governor Ueda has stressed that early wage-negotiation momentum will be crucial for the Bank’s December 19 policy decision, with markets pricing an ~80% chance of a rate hike. His recent comments about Japan’s “neutral” rate being above current levels have reinforced expectations of tightening and lifted JGB yields. While some warn of yen carry-trade unwinding, wide U.S.–Japan yield differentials mean a sudden crash is unlikely. The market still expects only gradual BOJ hikes as the Fed eventually cuts, keeping the rate gap from closing too quickly. Even if the BOJ hikes in December, investors may soon question how much further it can tighten given its cautious stance and a fiscally expansionary Takaichi administration.

The Aussie dollar jumped after weak U.S. ADP data boosted expectations of a Fed rate cut next week, while strong Australian household spending data reinforced the case for the RBA to stay on hold. October spending surged 1.3%—more than double forecasts—driven by discretionary items like clothing, footwear, furnishings, and hospitality tied to events and festivals. With demand still firm and inflation risks lingering, markets expect the RBA to keep policy steady through most of 2026, with the next move potentially being a hike. This positions the AUD to remain one of the highest-yielding G10 currencies into early 2026, making it an attractive carry play.

Eurozone inflation ticked up to 2.2% in November—slightly above the ECB’s target—driven mainly by rising service prices, while unemployment held steady at 6.4%. Despite this, the ECB is expected to keep its key rate at 2% for the foreseeable future, with policymakers confident that slower wage growth will eventually bring inflation back below target. The OECD projects modest eurozone growth through 2027, though one European bank offers a more optimistic outlook, citing potential fiscal stimulus in Germany and forecasting a stronger euro, albeit with limited upside due to continued support for the U.S. dollar. On the geopolitical front, tensions remain high as the U.S. envoy visits Moscow amid disputed Russian claims of capturing Pokrovsk—developments that could strengthen Russia’s leverage in peace negotiations if confirmed.

Japan’s recent political and economic signals point to a cautiously improving outlook, but with plenty of caveats. Finance Minister Satsuki Katayama’s comments suggest the government is comfortable with a near-term BOJ rate hike as the weak yen fuels inflation, though any tightening beyond December remains doubtful given BOJ caution and the government’s expansionary fiscal stance. While global FX remains driven by expectations of future Fed cuts—tilting medium-term sentiment toward a stronger yen—Japan still faces external risks from U.S. tariffs and strained China relations, which could dent growth. Domestically, the government’s new “DOGE-style” efficiency office looks more symbolic than transformative, arriving alongside a massive stimulus that likely outweighs any savings. Still, fresh data—from rising consumer confidence to resilient services-led PMI readings—shows gradual economic recovery and supports the BOJ’s slow, measured path toward policy normalization.

Recent data suggest Australia may be entering a cyclical upswing, supporting the RBA’s decision to stay on hold, and prompting some analysts to expect rate hikes in 2026. That outlook, combined with already high yields, positions the AUD as one of the most attractive G10 currencies. Still, capacity constraints, stagnant productivity, and soft 3Q GDP figures show the economy isn’t overheating, keeping the RBA cautious for now. Stable real incomes, rising household savings, and expected AUKUS-driven investment offer medium-term support, while China’s slowdown poses risks—though potential stimulus from Beijing could lift sentiment and provide an additional boost to the Aussie.

ECB President Christine Lagarde signaled that interest rates are appropriately restrictive for the euro area’s current stage of the inflation cycle, with inflation near 2% and wage growth easing. She and other officials—including ECB Vice President de Guindos and Germany’s Nagel—don’t expect a policy change in December unless new forecasts show inflation slipping clearly below target, though they remain watchful of upside risks such as US tariffs or supply disruptions. With most major central banks nearing the end of their easing cycles—or even considering hikes—the Fed may be the only one cutting again in 2026, a setup that could weaken the dollar and revive the euro. Eurozone inflation for November is expected to hold near current levels (headline ~2.1–2.2%, core ~2.5%) before easing more noticeably next year, while unemployment is forecast to remain steady at 6.3%. Geopolitically, Ukraine’s territorial questions remain the biggest obstacle to the US-backed peace plan, leaving negotiations far from resolved.

Governor Ueda signaled that the BOJ will seriously consider a rate hike at its Dec. 18–19 meeting, pushing expectations of year-end tightening sharply higher and lifting JGB yields. MUFG sees Ueda’s stance—and apparent alignment with the government—as paving the way for a near-term hike and supporting a stronger yen, with USDJPY potentially returning toward 150 early next year. Recent comments from Finance Minister Katayama reinforce this view, suggesting the government won’t resist tighter policy. While global FX remains sensitive to the Fed’s trajectory, a December hike may quickly shift focus to whether the BOJ can tighten further, given its slow cadence, fiscal expansion under the Takaichi administration, and rising external risks, including weaker Chinese demand. Meanwhile, Japan’s new DOGE-style fiscal efficiency office appears more symbolic than transformative, especially as it accompanies a ¥21–22 trillion stimulus package unlikely to offset upward pressure on debt or downward pressure on the yen.

The Aussie dollar’s recent pause came amid JGB-driven risk-off moves, but its technical and macro backdrop has strengthened notably. A wave of upbeat data suggests Australia is entering a cyclical upswing, supporting the RBA’s steady stance even as capacity constraints and stagnant productivity limit scope for rate cuts. With several analysts now expecting RBA hikes as early as early-2026, AUD could become one of the highest-yielding G10 currencies, enhancing its appeal. Additional support may come from defence spending, which is set to boost economic activity and housing demand, particularly in Perth. While weak Chinese data and property-sector stress remain headwinds, upcoming policy stimulus from Beijing could improve sentiment and offer the AUD further upside.

Germany’s inflation ticked up to 2.6% in November—its highest in nine months—mainly due to volatile travel and energy costs, even as underlying trends still point toward inflation easing below 2% over time. ECB President Christine Lagarde says current interest rates are appropriate, with no change expected in December unless new forecasts point sharply lower, though policymakers remain wary of risks like tariffs or supply disruptions. She notes the euro-area economy is proving more resilient than feared, even with soft spots in Germany and France. With most major central banks nearing the end of their policy shifts—and the Fed potentially the only one easing again in 2026—the dollar could face a downward phase that supports the euro. Geopolitically, the U.S. sees a “good chance” for progress on Ukraine talks, though Russia’s growing drone advantage may stiffen its bargaining stance. Investors this week will watch eurozone inflation, PMI surveys, and final Q3 GDP and employment data.

The yen has firmed slightly into early December as markets bet the Bank of Japan may finally raise rates, supported by steady domestic data and a softer U.S. dollar. Governor Ueda signaled that a December hike is on the table, pushing market odds above 70%, though policymakers want to see wage gains keep pace with inflation. Expectations of Fed rate cuts next year and a gradually tightening BOJ have tilted medium-term yield spreads in the yen’s favor, with some banks forecasting notable yen strength in early 2026. Still, doubts remain over how far the BOJ can tighten amid Japan’s loose fiscal stance and growing external risks, including weaker Chinese demand and geopolitical tensions. This week’s consumer confidence, household spending, leading indicators, and final PMI readings will give markets more clues on Japan’s economic trajectory.

Australia’s recent run of strong economic data suggests the economy is entering a cyclical upswing, supporting the RBA’s decision to stay on hold. Business investment—especially in data centers—has surged, housing prices and credit growth are climbing, consumer spending is improving, and both manufacturing and services activity have strengthened. A tight labor market and near-record government spending add further momentum, but higher-than-expected inflation and stagnant productivity mean the economy may be hitting capacity limits, making near-term rate cuts unlikely. Many analysts now expect the next move to be rate hikes in 2026, which could leave the AUD as one of the highest-yielding G10 currencies and a preferred risk and China-proxy play. This week’s 3Q GDP, alongside trade and household spending data, will offer a fuller view of the economy’s trajectory.

The eurozone is showing signs of slow, steady improvement: economic confidence has risen for a third month to its highest level since early 2023, supported by stronger services activity and firmer employment expectations, even as industry and consumers remain cautious. Germany’s consumer sentiment has also stabilized, with buying willingness improving ahead of the holidays, though overall confidence and spending power remain weak. Despite geopolitical tensions and new U.S. tariffs, the eurozone economy expanded modestly in Q3 and unemployment remains low, supporting a gradual recovery. Central banks are broadly on hold, and with the Fed likely to be the only major bank easing further into 2026, the dollar could weaken and help the euro turn higher. Upcoming German data—retail sales, unemployment, and CPI—should show slight spending stabilization, steady labor conditions, and inflation hovering near recent levels.

Tokyo’s latest CPI reading stayed firm at 2.7%—with core measures also unchanged—supporting the case for BOJ policy normalization, though markets think PM Takaichi may still push for patience as long as inflation isn’t accelerating. Fresh data showed surprisingly strong industrial output and retail sales, reinforcing pressure for at least one BOJ rate hike, but investors doubt the central bank’s freedom to tighten further under a government still aligned with Abenomics. Policymakers appear to be attempting an unsustainable mix of loose fiscal policy, negative real rates, and a stable yen, a combination markets are likely to challenge. Ultimately, a meaningful yen rebound depends more on U.S. rate cuts, which one major US investment house expects to drive USDJPY toward 140 by early 2026. Meanwhile, geopolitical tensions with China persist—despite Japan denying a report about U.S. advice on Taiwan—adding another headwind for the yen and a factor the BOJ may weigh in its policy decisions.

Australia’s Q3 private capital expenditure jumped 6.4% QoQ—far above expectations—driven almost entirely by a surge in tech-related investment, especially data centres and AI infrastructure, which saw machinery and equipment spending soar over 90%. Outside of tech (and a boost from aircraft deliveries), broader business investment remains soft, but the tech-led capex boom should support Q3 GDP. This comes alongside a run of stronger-than-expected economic data and steady credit growth, reinforcing expectations that the RBA will keep policy restrictive for longer, with some even forecasting rate hikes in 2026. Combined with improving U.S.–China relations and the yuan’s recent strength, the Aussie dollar could benefit both as a high-yield currency and a proxy for China-related risk appetite.

ECB officials broadly argue against rushing into more rate cuts, even if inflation briefly dips below 2%, noting that underlying price pressures and wage trends still point toward sustainably reaching the target. Policymakers are expected to hold rates steady in December as inflation eases and growth shows early signs of recovery, though risks persist from higher government spending—especially in Germany—and the gradual rollout of the EU’s carbon-pricing system. Most central banks globally are nearing the end of their tightening or easing cycles, leaving the Fed as the possible lone major bank cutting into 2026, which could weaken the dollar and support the euro. Geopolitically, a U.S. delegation will visit Russia for peace talks, though Europe doubts a near-term breakthrough. Meanwhile, Eurozone confidence data and Germany’s GfK readings are expected to show only slight improvements, reflecting persistent consumer pessimism and implying that any recovery in spending and retail demand will remain slow and fragile.

Markets are increasingly betting that the BOJ may signal a rate hike as early as December, as more policymakers hint that conditions are “ripe” for higher rates. Several board members are now openly pushing for tighter policy, though Asahi Noguchi has recently struck a more cautious tone, advocating gradual, measured adjustments. Political constraints under the Takaichi administration could limit how far the BOJ can tighten, leading markets to see any hike as potentially “one and done.” Meanwhile, China-Japan tensions and retaliatory measures pose additional downside risks for the yen. Ultimately, a meaningful yen rebound depends more on the U.S. outlook, with one major US investment house expecting Fed rate cuts to strengthen the yen by early 2026. Tomorrow’s Tokyo CPI print—likely still elevated—may influence how much patience the government urges on rate hikes.

Australia’s October inflation came in hotter than expected, with core prices rising 3.3% and headline inflation at 3.8%—both above the RBA’s 2–3% target. The surprising strength pushed the Australian dollar and bond yields higher as markets scaled back expectations for rate cuts. Some economists now think the RBA’s easing cycle is over, while others warn rates might even rise in 2026 if inflation stays sticky and the labor market tightens, especially given sluggish productivity. If upcoming inflation data remains firm, the case for future hikes could strengthen. Even without tightening, Australia is still poised to have the highest G10 interest rates in early 2026, making the Aussie an appealing high-yield currency.

Germany’s economy remains stuck in a period of weak growth, with recent data showing flat GDP as soft private consumption and exports weigh on activity. Economists expect conditions to improve gradually once substantial fiscal stimulus—embedded in the upcoming 2026 budget—kicks in, helping lift the country out of stagnation. The EU projects German growth of about 1.2% in both 2026 and 2027, supported by rising industrial orders and a slow economic revival. Meanwhile, many notable investors expect further ECB rate cuts as euro-area growth and wages cool, and some see U.S. monetary easing putting pressure on the ECB to follow suit—contributing to their bullish stance on the euro.

Japan is stepping up verbal warnings on yen weakness, but this has only capped USDJPY temporarily as markets also price in rising odds of Fed rate cuts. Traders increasingly think Japan’s intervention “playbook” is shifting under the Takaichi administration, with officials signaling they might act more often and at lower levels—though any impact will be brief without a meaningful BOJ policy shift. Growing speculation now points to a possible BOJ rate hike as early as December or January, with several board members dropping hawkish hints, though political constraints could limit this to a “one-and-done” move. Geopolitical tensions with China and possible retaliatory actions also weigh on the yen.

Australia’s October inflation came in hotter than expected, with core prices rising 3.3% and headline inflation at 3.8%—both above the RBA’s 2–3% target. The strong print pushed the Australian dollar and bond yields higher and led some economists to think the easing cycle may already be over. One Australian bank even warns rates could rise in 2026 if inflation stays sticky, the labor market remains tight, or productivity continues to lag. With unemployment still low, wages strong, and the new monthly CPI measure potentially distorted by seasonality, the RBA is likely to stay cautious and rely on quarterly data as it maintains a wait-and-see stance.

Germany’s latest Ifo survey shows business confidence slipping again, with firms seeing little chance of a near-term recovery despite a slight improvement in current conditions. Weak expectations—especially in manufacturing—underscore doubts that government spending plans can overcome the country’s prolonged stagnation. Forecasters still see modest fourth-quarter growth, but projections are being trimmed, and advisers warn that without genuinely new, productive investment, Germany risks losing its longer-term growth momentum. Bloomberg notes the economy is “struggling to find its footing,” with industry hindered by trade disruptions while services provide what little growth there is. The European Commission remains more optimistic, expecting higher investment and private consumption to help Germany emerge from stagnation next year. On geopolitics, Trump and Ukrainian officials signaled progress on a US-backed peace framework—though renewed Russian-Ukrainian shelling quickly tempered optimism. Upcoming German data should show flat GDP and only marginal gains in consumption and investment, highlighting a fragile, stop-start recovery driven more by domestic demand than external strength.

Under the Takaichi administration, traders worry that Japan’s usual rules for intervening in USDJPY are shifting, with authorities acting earlier, at calmer moments, and around lower levels like 157–158 instead of waiting for sharp volatility or big monthly moves. Recent comments from officials hint at a more flexible, proactive doctrine, but without a meaningful BOJ policy shift, intervention alone is likely to have only temporary impact. Markets increasingly doubt the BOJ’s freedom to tighten policy, pricing in only a small chance of a December hike and viewing any eventual move as “one-and-done.” Ultimately, a lasting yen rebound may depend more on Fed rate cuts, which some expect in 2026. Meanwhile, a sensitive call between PM Takaichi and Trump—linked to messages about China and Taiwan—highlights geopolitical tensions that could still trigger Chinese retaliation and add further downward pressure on the yen.

The Aussie has bounced from recent lows as improving risk sentiment and firmer equities support a recovery, though a clear break above the 200-day moving average is still needed to confirm stability. Strong labour demand, high wages, and resilient economic data have reinforced the RBA’s decision to pause further rate cuts, with some analysts suggesting the easing cycle is already over. If the RBA stays on hold while the Fed cuts rates in 2026, Australia could offer the highest yields in the G10. Meanwhile, improving exports—helped by lifted U.S. tariffs and record iron ore shipments—support Australia’s growth outlook. Tomorrow’s inflation data is expected to show only a mild easing, unlikely to shift the RBA’s steady stance at the upcoming December meeting.