EU officials, initially aiming for a tariff-free trade deal with the US, settled for a 15% tariff rate, higher than the anticipated 10%, and made additional concessions. Lacking critical exports like rare earths, the EU, which mainly exports luxury goods, faced a weaker bargaining position, potentially pushing Europe to hasten economic reforms and diversify trade partners. The 15% tariff is unlikely to significantly disrupt EU growth or inflation, with the ECB maintaining its 2% deposit rate and viewing any inflation dip as temporary. While the euro weakened due to the lopsided deal, markets may soon focus on the EU avoiding a worse outcome, with expectations of divergent US and EU monetary policies influencing currency trends in the near term.

Despite the US-Japan trade deal, Prime Minister Ishiba’s position remains shaky due to the LDP minority status in both houses, with growing internal pressure for his resignation. If Ishiba steps down, Shinjiro Koizumi and Sanae Takaichi are leading contenders for LDP leadership; Koizumi supports the Bank of Japan’s independence, while Takaichi favors monetary easing and could resist BOJ rate hikes. The BOJ is expected to hold rates steady at its upcoming meeting, with markets focused on its inflation outlook and hints of future rate hikes, though a new “risk management approach” may justify caution despite strong inflation trends. June retail sales, industrial production, and housing data, particularly retail sales showing consumer strength, will influence yen trading before the BOJ meeting.

The market is focused on the upcoming FOMC meeting, where the Federal Reserve is expected to maintain a cautious, data-driven stance, boosting the U.S. dollar against other G10 currencies. Australian super funds, managing a A$4.1 trillion asset base, are reassessing U.S. investments and increasing AUD hedging to mitigate potential declines in the AUDUSD exchange rate. Australia’s Q2 CPI, due July 30, is projected to show inflation easing to 2.2% YoY, potentially prompting an RBA rate cut in August, though Governor Bullock’s recent hawkish remarks suggest a slower approach to rate cuts, supported by a stable labor market and slightly lower-than-expected core inflation. While markets still anticipate an August cut, expectations for aggressive, consecutive cuts have waned, with two cuts projected by year-end, likely in August and November.