ECB Chief Economist Philip Lane stated that while U.S. tariffs may hinder Eurozone growth, trade tensions are unlikely to trigger a recession due to diverse trading partners. The ECB’s June meeting will release updated economic projections factoring in these tariffs, with expectations of weaker growth and inflation, aligning with the IMF’s revised 2025 forecast of 0.8% growth. ECB President Lagarde emphasized a data-driven approach to monetary policy, with potential for an eighth 25bps rate cut in June, as economists predict the deposit rate dropping from 2.25% to 1.5% to boost demand. Despite the ECB’s accommodative stance, Eurozone equities remain undervalued compared to U.S. markets, suggesting potential for growth and favoring European assets. This week’s Eurozone GDP and inflation data will be closely watched, while geopolitical developments, including Trump’s meeting with Zelensky and warnings of further sanctions on Russia, add uncertainty.

Risk sentiment is improving and the yen has taken a hit as a consequence on the back of the traditional correlation. The Bank of Japan is anticipated to maintain its 0.5% target rate at the April 30-May 1 meeting due to trade war uncertainties, despite Tokyo’s CPI rising to 3.5% and core inflation at 3.4%, signaling persistent inflationary pressures above the BOJ’s 2% target. A Bloomberg survey indicates no policy change is expected, with only 45% of economists predicting a rate hike by September, and the BOJ’s terminal rate forecast lowered to 1%. The BOJ is likely to cut its growth forecast but signal gradual rate hikes to support yen strength, potentially aiding US-Japan trade talks, where Japan seeks concessions on tariffs and aims for an agreement by the G7 summit in June. Japan has been resisting U.S. efforts to align against China due to vital trade ties. Goldman Sachs has been out calling for USDJPY 135 within 12 months as the dollar’s overvaluation unwinds.

The Australian Dollar is showing signs of bottoming, driven by a shift away from USD assets and supported by China’s signaling of accelerated fiscal and monetary stimulus, including potential rate cuts and increased bond issuance, alongside easing US-China trade tensions. Australia’s Q1 and Q2 2025 GDP forecasts remain at 0.5% QoQ, with 2025 CPI slightly lowered to 2.5% YoY, and the RBA is expected to cut rates from 4.10% to 3.85% by Q2 2025, with markets pricing in a May cut due to growth concerns outweighing inflation risks. S&P has been out warning Australia’s AAA credit rating could be at risk if election pledges increase deficits, while polls suggest the Labor government is poised to win the May 3 election.