Last week’s slightly higher German inflation and stable Euro area inflation aligned with ECB targets, suggesting the ECB may be nearing the end of its rate-cutting cycle. A weaker US jobs report last Friday triggered a sharp EURUSD rebound, as hopes for earlier Fed rate cuts grew, with some analysts predicting a potential 50bps cut in September if US labor markets weaken further. The euro outperformed most G10 currencies, boosted by unwinding short positions, while ECB official Christodoulos Patsalides highlighted the eurozone’s resilience despite global tensions and a US-EU trade deal, emphasizing data-dependent ECB policy. One institutional shop noted potential eurozone growth challenges from the trade deal’s 15% tariff but expect the euro to rise against a weakening dollar as global portfolios diversify. This week’s key Eurozone data includes the August Sentix Investor Confidence, June PPI, June Retail Sales, and the ECB Economic Bulletin, offering insights into monetary policy and economic projections.

Last week, the USDJPY rose due to Japan’s political instability, a hawkish U.S. Federal Reserve, and the Bank of Japan’s unchanged 0.5% interest rate despite a higher 2.7% inflation forecast for 2025. A disappointing U.S. jobs report reversed this trend, triggering a dollar sell-off and erasing the week’s gains as traders exited long USDJPY positions. Looking ahead, markets will monitor Japan’s upcoming wage and household spending data, BOJ meeting minutes, and a 30-year JGB auction, alongside U.S. employment and inflation indicators, for signals on future rate changes. Political uncertainty in Japan and potential Fed policy shifts could further influence yen volatility, with USDJPY maintaining a bullish bias above 145.76-145.86, though a dovish Fed shift may weaken the dollar against G10 currencies.

Last Friday, G10 currencies, particularly the Yen and Euro, rallied against the dollar due to weaker-than-expected U.S. labor data, boosting expectations for a Federal Reserve rate cut in September, though Trump’s tariff announcements tempered gains for antipodean currencies, which saw the smallest increase. In Australia, Q2 CPI data came in slightly below expectations, supporting a likely 25bps rate cut by the RBA in August, with inflation aligning with RBA projections and the unemployment rate at 4.3% still near full employment. Strong June retail sales (up 1.2% MoM) and building approvals (up 11.9% MoM) suggest resilient consumer spending and a potential housing sector recovery, but Bloomberg notes spending growth was driven by discounts and may not be sustainable, with markets anticipating at least two RBA rate cuts this year unless economic strength prompts a pause.