Initially, tariff threats from former President Trump caused the U.S. dollar to strengthen against other currencies, but his recent proposal to impose tariffs on European goods unexpectedly boosted the Euro against the dollar. Despite expectations of stable 10% tariffs and upcoming trade deals before the July deadline, markets were reminded of ongoing trade war uncertainties, prompting a shift toward safe-haven assets. Meanwhile, Eurozone wage growth slowed to 2.4% in Q1 from 4.1% in Q4 2024, signaling cooling service prices and reinforcing ECB confidence in reaching their 2% inflation target, with an expected rate cut on June 5 and traders anticipating 2-3 additional cuts this year. Key upcoming data includes Germany’s June Gfk Consumer Confidence, May inflation figures from several EU countries, and EU-wide confidence surveys.

Japanese government bond yields, particularly for 20-year and 30-year bonds, have surged to record highs of 2.605% and 3.204%, respectively, raising concerns about a potential yen carry trade unwind as Japanese investors may repatriate capital from global assets like U.S. Treasuries and equities. April’s core inflation rose to 3.5% year-on-year, exceeding expectations, with persistent price pressures from food, labor, and energy, and upcoming Tokyo CPI data for May likely to show further increases, intensifying pressure on the Bank of Japan for a potential rate hike. However, weak domestic demand and a possible technical recession complicate the BOJ’s decision, with a narrow window for action before the July election and “Liberation Day” tariff deadline. Japan’s trade negotiations with the U.S., including discussions around auto tariffs and Nippon Steel’s proposed $14.1 billion acquisition of U.S. Steel, could influence BOJ policy if resolved favorably by the G7 meeting in June. This week, investors will watch Japan’s 40-year bond auction, BOJ bond-buying operations, and April PPI Services data, expected to show a 3.0% year-on-year rise, reflecting ongoing pricing pressures tempered by low business confidence.

President Trump’s recent threats of 50% tariffs on European imports and 25% duties on foreign-made smartphones have reignited market concerns about trade uncertainties tied to the “Liberation Day” tariffs, leading to a weaker U.S. dollar and gains for the Australian Dollar. Reserve Bank of Australia Deputy Governor Andrew Hauser noted that while Australia has seen little direct impact from global trade disruptions so far, the RBA is ready to adjust policy if needed, and some Australian firms see opportunities to gain a competitive edge in China due to U.S.-China trade tensions. Australian inflation data, due Wednesday, is expected to soften, supporting predictions of RBA rate cuts later this year, with major banks forecasting a year-end cash rate of 3.10% to 3.35%.