The euro hovers below its July four-year high as the ECB signals a pause in rate cuts, citing strong labor markets and German business morale reaching a 15-month peak, contrasting with the Fed’s expected September easing. European bond yields, like Germany’s 10-year at 2.75% and France’s at 3.51%, rose amid fiscal concerns and reduced ECB cut expectations, while European stocks, led by semiconductors, saw modest gains. Trade tensions with the U.S. persist, with the EU planning to remove tariffs on U.S. goods in response to Trump’s demands. Upcoming Eurozone confidence data and Switzerland’s Q2 GDP, expected to slow to 0.1%, highlight diverging U.S.-Europe economic paths, likely shaping markets through 2025.

The Japanese yen remained stable as investors awaited key economic data, particularly Tokyo’s inflation report, which could support further Bank of Japan rate hikes. Economists predict the “core-core” CPI will rise to 3.2%, driven by higher food and dining costs, while BOJ Governor Ueda’s hawkish comments signal confidence in sustained wage growth and inflation, potentially leading to an October rate increase. Japanese bond yields hit a 17-year high, reflecting these expectations, but market caution persists due to U.S. political uncertainties, including President Trump’s dismissal of Fed Governor Lisa Cook, raising concerns about central bank independence. The Nikkei 225 gained slightly, led by semiconductor stocks, while upcoming economic data will shape the yen’s trajectory and BOJ policy outlook.

The Australian dollar remained stable despite unexpectedly high inflation data, with July consumer prices rising to 2.8% year-on-year, surpassing forecasts of 2.3% and June’s 1.9%. Core inflation also climbed to 2.7%, complicating the Reserve Bank of Australia’s policy outlook, though markets still anticipate a rate cut in November due to the volatile nature of monthly inflation data. Australian bond yields rose, with the 10-year yield hitting 4.33%, reflecting the inflation surprise, while the RBA’s recent minutes suggested openness to rate cuts if inflation eases, creating uncertainty about future policy decisions.