The Euro continues to benefit from a persistent trend of selling U.S. assets in favor of non-U.S. currencies. The ECB’s latest survey slightly raised inflation forecasts to 2.2% for 2025 and 2% for 2026, with long-term expectations steady at the 2% target, while economic growth projections were lowered to 0.9% and 1.2% for 2025 and 2026, respectively, and unemployment forecasts improved to 6.3%. ECB President Lagarde emphasized a data-dependent approach to potential pauses in the rate-cutting cycle, while ECB de Guindos suggested the Euro could challenge the dollar as a reserve currency if Europe deepens integration, though this is a long-term goal. April Preliminary PMI data for the Eurozone, including Germany and France, is due today, with manufacturing PMIs expected to remain contractionary and France’s services sector likely to lag.

U.S.-Japan trade talks are critical, with markets watching for Trump’s concessions on tariffs, which could support the dollar and risk assets while prompting profit-taking on yen longs. Japan, led by Prime Minister Ishiba, is pushing back to protect its interests and engaging China to avoid trade friction. Quick wins like tariff-free U.S. rice imports are likely, but Japan’s Finance Minister Kato may avoid firm currency commitments, favoring “market-determined rates.” The BOJ remains cautious on rate hikes, potentially cutting 2027 inflation forecasts to 2% and this year’s growth projection from 1.1% to 0.5% due to a stronger yen and tariff uncertainties.

The Australian Dollar appears to be forming a bottom as investors rotate out of USD assets, with potential for further gains if China bolsters economic support to counter U.S. tariffs. And although U.S.-China trade dynamics remain volatile, the Trump administration’s signaling of a softer stance has helped the Australian Dollar. OIS markets are pricing in a certain RBA rate cut in May, as economic growth concerns outweigh inflation risks.