Last Friday, the euro surged amid escalating US-China trade tensions, which positioned the euro as a safe-haven alternative to the dollar—reverting to its April role during US policy-driven uncertainty. The rally gained momentum from a relief bounce after France’s political turmoil eased, with Macron reappointing LeCornu as PM to stabilize governance and deliver the 2026 budget, boosting euro sentiment. However, weak German data—like declining industrial production and exports—has tempered bullishness, raising recession fears and capping the single currency without stronger fiscal stimulus or Eurozone growth signals. A dovish Fed pivot or US data weakness could still drive it higher. This week, key watches include Germany’s ZEW Sentiment Index, Eurozone August industrial production, September finalized inflation, and August trade balance for clues on manufacturing and optimism.

Japan’s political crisis deepened with the sudden end of the 26-year LDP-Komeito alliance, sparked by disputes over donation laws amid a funding scandal and clashing ideologies between LDP leader Sanae Takaichi’s nationalism and Komeito’s pacifism, undermining her path to becoming the country’s first female prime minister in a divided parliament facing potential opposition coalitions led by DPP’s Yuichiro Tamaki. The fallout has roiled markets, with the yen fluctuating due to uncertainty, U.S.-Japan trade tensions boosting safe-haven demand, and the Bank of Japan likely pausing rate hikes amid gridlock that tempers bold fiscal moves. One notable bank predicts eventual compromise for moderate policies, forecasting USDJPY lower over 3 and 6 month time horizons, while the pair may swing in a 149-153 range shorter-term, influenced by inflation, U.S. momentum, and China tensions. Markets now eye BOJ speeches by Naoki Tamura and Deputy Governor Uchida, plus Thursday’s August core machine orders data.

The Australian dollar has risen alongside other risk currencies as markets welcome President Trump’s conciliatory rhetoric toward China and U.S. officials’ openness to talks, but Aussie faces renewed headwinds into mid-to-late October amid risks of escalating U.S.-China trade tensions before a potential leaders’ meeting at the APEC summit; China’s dominance in global processing heightens vulnerabilities for Australia’s resource-dependent economy and overall risk appetite. Domestically, the Reserve Bank of Australia remains cautious, with Governor Michele Bullock highlighting sticky service-sector inflation alongside a moderating labor market and watchful policy, while rate cut expectations stay muted after August’s upside CPI surprise; this week brings the RBA’s September meeting minutes on Tuesday, NAB Business Confidence data, and Thursday’s key September employment figures—unemployment rate, job changes, and full-time hires—which investors will scrutinize closely.