The Eurozone’s April CPI data, due today, is expected to show a slight decline in overall inflation to 2.1% from 2.2%, driven by lower energy and service costs, while core inflation may rise slightly to 2.5% due to higher holiday-related expenses. Despite weak economic growth prompting the ECB to lower its 2025 GDP forecast to 0.9%, markets anticipate interest rate cuts starting in June, potentially lowering ECB deposit rates to 1.5%-1.75%. ECB officials emphasize a cautious, data-driven approach to policy decisions. Meanwhile, Eurozone pension funds with $770 billion in unhedged dollar exposure are shifting toward euro-based assets to hedge currency risks, and European consumers are increasingly favoring local products over U.S. alternatives due to trade tensions, signaling a potential long-term shift.

The Bank of Japan has delayed its 2% inflation target and cut its growth forecast to 0.5% due to global trade uncertainties, reducing expectations for near-term rate hikes and boosting USDJPY. Despite this, BOJ Governor Ueda has emphasized rate hikes could resume if trade issues, particularly U.S. tariffs, are resolved, with Japan leveraging its U.S. treasury holdings in ongoing trade talks to secure favorable terms. Recent talks in Washington show progress, with hopes for a trade agreement by June, potentially shifting market focus back to BOJ rate hikes, with Bloomberg predicting a July increase and a target rate of 1.25% next year. Japan’s March data showed a slightly higher jobless rate of 2.5% but a tight labor market with a job-to-applicant ratio of 1.26, supporting wage growth and BOJ’s gradual rate hike plans.

The U.S. is nearing its first trade deals, but no official talks have occurred with China, who insists on tariff removal before negotiations, creating a standoff that could limit AUDUSD gains due to Australia’s trade ties with both nations. Weakening U.S. labor data may push the Federal Reserve toward rate cuts, with a 67% chance of a June cut and up to 100 basis points of easing by year-end, potentially weakening the dollar. In Australia, higher-than-expected March inflation and first-quarter PPI (0.9% QoQ, 3.7% YoY) suggest persistent price pressures, possibly leading the RBA to delay rate cuts despite market expectations of 115 basis points of easing in 2025. Australian retail sales rose 0.3% in March, slightly below forecasts but marking three months of growth.