The European Central Bank has introduced a robust strategy to tackle significant inflation swings, aiming to keep inflation near its 2% target and prevent public expectations of persistent price changes, which could trigger wage and price hikes. This approach responds to uncertainties from geopolitical issues, AI growth, demographic shifts, and environmental challenges. Meanwhile, a major bank strategist predicts a U.S. interest rate cut could weaken the dollar, pushing EURUSD toward 1.20 as investors hedge against dollar weakness. On trade, EU official Antonio Costa suggests NATO’s 5% defense spending deal, favoring U.S. arms purchases, could facilitate a U.S.-EU trade agreement, though France prefers boosting European industries. The EU is open to a U.S. trade deal with a 10% tariff on exports but seeks lower tariffs on key sectors like pharmaceuticals and automobiles, aiming for an interim agreement by July 9 to extend talks.

Japan’s trade talks with the U.S. last Friday yielded no major progress, with both sides restating their positions on U.S. tariffs but committing to further negotiations, as Japan’s negotiator Akazawa extended his U.S. visit. Trump highlighted the U.S.-Japan trade imbalance, particularly in autos, suggesting Japan import more U.S. goods like oil to address it, with the 25% auto tariff remaining a key issue. Despite tariff concerns, Japan’s weak yen supports auto exporters, and strong Q2 Tankan data—large manufacturing index and robust capital expenditure plans—signals economic resilience, potentially easing pressure on the Bank of Japan for stimulus. However, markets remain skeptical about a full BOJ rate hike soon, and small firms show weaker sentiment, facing cost and competitive pressures, while the yen strengthens amid expectations of U.S. Federal Reserve rate cuts.

Australia’s commodity export earnings dropped 7% to A$385 billion in the year to June, driven by weak iron ore and natural gas prices despite high gold prices, with further declines expected over the next two years due to trade barriers and slowing global growth, according to a government report. May inflation fell to 2.1%, below the expected 2.3%, with trimmed mean CPI at 2.4%, prompting economists to predict an earlier Reserve Bank of Australia rate cut, possibly at the July 8 meeting, with markets pricing three cuts to a 3.10% terminal rate, some forecasting 2.85%. Despite this, the Australian dollar is strengthening against the U.S. dollar, boosted by anticipated U.S. Federal Reserve easing, easing Middle East tensions, optimism for global trade deals, and signs of recovery in China, Australia’s key trade partner.