The euro rose above $1.17 in early September, driven by a weak dollar amid expectations of Federal Reserve rate cuts and ongoing U.S. political uncertainty. European stocks gained slightly, with defense stocks like Rheinmetall surging due to potential EU military plans for Ukraine, while Novo Nordisk rose on positive drug trial data. Economic indicators showed resilience, with Eurozone unemployment at a record low of 6.2%, manufacturing PMI hitting 50.7, and Germany’s PMI nearing expansion at 49.8. Trade talks persist despite legal challenges to U.S. tariffs, and bond markets remain tense with Germany’s 10-year yield above 2.7%. Eurozone inflation data, expected to show a slight uptick, is unlikely to shift the ECB’s easing path as trade tensions take center stage.

Japan’s economy shows mixed signals: corporate capital spending surged 7.6% in Q2, exceeding expectations, but manufacturing weakened, with the August PMI at 49.7, signaling continued contraction. Despite this, rising wages and persistent inflation fuel expectations of a Bank of Japan rate hike by year-end. The Nikkei and Topix indices fell 1.24% and 0.39% respectively on Monday, driven by tech stock losses, though both later edged up 0.2%. Elevated bond yields, with the 10-year JGB at a 17-year high of 1.6%, and a cautious bond market ahead of a key auction and BOJ Deputy Governor Himino’s speech, add uncertainty. Japan’s monetary base also shrank 4.1% year-on-year to JPY 645.6 trillion in August, continuing a seven-month decline.

The Australian dollar has surged to a two-week high, bolstered by a robust manufacturing sector, with the Manufacturing PMI hitting a near three-year high of 53 in August. Despite mixed economic signals, including a modest job market recovery and a sharp 8.2% drop in total dwelling approvals, the currency is supported by a weaker US dollar and rising bond yields, with Australia’s 10-year ACGB yield at 4.34%. However, the stock market saw declines, with the S&P/ASX 200 falling 0.5%, and economic growth concerns persist as Q2 GDP forecasts suggest a slowdown to 1.7%. Net exports are expected to detract slightly from growth, with a projected current account deficit of A$16 billion, driven by weak services exports and a structural income deficit.