The latest headlines around President Trump softening his stance on trade have opened the door for some profit taking on long Euro positions. But overall, the trend of selling the US Dollar and buying Euros remains in play on account of US administration policies and unpredictability. Also weighing on the Euro a bit is the ECB’s wage tracker, which indicates a sharp slowdown in wage growth to 1.6% in Q4 2025, down from 5.3% last year, supporting expectations of declining inflation and potential ECB interest rate cuts, with markets anticipating two more cuts in 2025. ECB President Lagarde has emphasized a data-dependent approach to future rate decisions, with clarity expected from the June 2025 ECB meeting, while U.S. tariffs and China’s export rerouting could have a disinflationary effect on the Eurozone. Geopolitical tensions, particularly fading hopes for a Russia-Ukraine peace deal, and Germany’s upcoming IFO Business Climate Survey, expected to decline to 85.2 from 86.7, add further uncertainty amid U.S. tariff impacts.

The Trump administration’s softened stance on China has shifted focus to U.S.-Japan trade talks, where Japan may leverage the U.S.’s desire for a “successful” deal to negotiate favorable tariff concessions, such as tariff-free U.S. rice imports to address Japan’s domestic shortages. U.S. Treasury Secretary Bessent has ruled out currency targets in these talks, disappointing yen bulls, with speculative yen positions likely to unwind, though the dollar’s long-term downtrend persists. The Bank of Japan is expected to maintain current interest rates through June 2025, with 52% of economists in a Reuters poll anticipating a hike in Q3 2025, while the BOJ’s upcoming outlook report will likely reaffirm gradual rate increases despite U.S. tariff risks. Japan’s economy is projected to benefit from a stronger yen reducing import costs, supporting consumption and mitigating downturn risks, though the IMF cut Japan’s 2025 growth forecast to 0.6% and urged fiscal consolidation. Tokyo’s April CPI, a key inflation indicator, is expected to rise to 3.3% year-on-year, potentially fueling expectations for BOJ rate hikes in late 2025.

The Australian Dollar is showing signs of bottoming out above, supported by a broader shift away from USD assets and potential Chinese policy measures to counter U.S. tariffs, which could further bolster the Australian dollar if it reclaims the 200-day moving average. The Trump administration’s recent conciliatory gestures toward China suggest that the peak of trade war tariffs may have passed, reducing negative impacts on China and benefiting antipodean currencies like the Australian Dollar. Despite inflationary pressures, markets expect the RBA to cut rates in May to prioritize economic growth.