The ECB President’s view of the euro’s strength as an opportunity suggests tolerance for further appreciation, potentially nearing 1.20. The European Commission cut its eurozone GDP forecast to 0.9% for 2025 and 1.4% for 2026, citing U.S. tariffs, with inflation projected at 1.7% in 2026, possibly prompting ECB rate cuts. A new EU-UK deal boosting defense and trade eased post-Brexit tensions, while April inflation held steady at 2.2% and May’s Consumer Confidence is expected to rise.

Speculation of Asian currency appreciation, especially the yen, is growing as Japan and South Korea discuss currency matters with the U.S. amid trade talks, with traders betting on stronger Asian currencies as part of U.S. trade agendas. Japan’s Finance Minister Kato will meet U.S. Treasury Secretary Bessent at the G7 meeting (May 20-22, 2025), while a weak GDP print and unresolved U.S. auto tariffs keep the BOJ cautious on rate hikes. A trade deal removing the 25% car tariff could shift focus to BOJ rate hikes, with upcoming inflation and trade data likely to complicate its stance.

Markets are nearly certain of a 25bps rate cut at the upcoming Reserve Bank of Australia meeting, lowering the Official Cash Rate (OCR) from 4.10% to 3.85%, despite strong job and wage data, as global growth concerns from the “Liberation Day” tariff shock and weak domestic indicators like retail sales and productivity outweigh labor market strength. Core inflation fell to 2.9% in Q1 2025, within the RBA’s 2-3% target for the first time since 2021, giving the RBA room to ease policy, though a hawkish cut is expected due to lingering inflation and labor market concerns, with markets pricing in two more cuts to reach 3.35% by year-end. A U.S.-China trade truce and potential currency appreciation in Asia, particularly in South Korea and Japan, could support a stronger Chinese yuan, boosting the Australian dollar as a yuan proxy, while a rising risk premium on U.S. assets may keep the U.S. dollar weak.