The Eurozone’s April CPI data, due today, is expected to show a slight decline in overall inflation to 2.1% from 2.2%, driven by lower energy and service costs, while core inflation may rise slightly to 2.5% due to higher holiday-related expenses. Despite weak economic growth prompting the ECB to lower its 2025 GDP forecast to 0.9%, markets anticipate interest rate cuts starting in June, potentially lowering ECB deposit rates to 1.5%-1.75%. ECB officials emphasize a cautious, data-driven approach to policy decisions. Meanwhile, Eurozone pension funds with $770 billion in unhedged dollar exposure are shifting toward euro-based assets to hedge currency risks, and European consumers are increasingly favoring local products over U.S. alternatives due to trade tensions, signaling a potential long-term shift.

Despite a strong U.S. April Non-Farm Payrolls report, USDJPY bulls struggled to gain momentum, as weak U.S. GDP (-0.3% in Q1) and contractionary ISM Manufacturing data (48.7) signal caution, with markets still expecting three Fed rate cuts this year but no change at the May 6-7 meeting. The Bank of Japan delayed its 2% inflation target and cut growth forecasts to 0.5% due to trade uncertainties, pushing back rate hike expectations, though Governor Ueda stressed hikes could resume if tariff issues clear, with Bloomberg predicting a July increase to a 1.25% target rate next year. Japan, leveraging its U.S. treasury holdings, is progressing in trade talks with the U.S., aiming for a June deal, which could shift focus back to BOJ rate hikes if auto and metal tariffs are resolved. Japan’s Finance Minister Kato downplayed using treasury holdings as leverage, but U.S. creditors hold significant negotiating power. This week, BOJ’s March meeting minutes and Japan’s March Household Spending data, both due Thursday, will be closely watched, with Japanese markets closed Monday and Tuesday for holidays.

Australian Prime Minister Albanese’s landslide election victory strengthens political stability, potentially boosting the Australian Dollar, while rising 10-year bond yields signal persistent budget deficits. Signs of easing U.S.-China trade tensions, with China considering tariff talks after U.S. outreach, could further support Aussie, given Australia’s trade ties with both nations. Strong U.S. April jobs data may be the last positive report for a while, as tariff impacts loom, potentially pushing the Fed toward rate cuts (80 basis points expected by year-end) to support employment despite above-target inflation. In Australia, March inflation (3.3% YoY, above the RBA’s 2-3% target) and rising consumer inflation expectations (4.2%) suggest persistent price pressures, casting doubt on market expectations of 103 basis points of RBA rate cuts in 2025, likely leading to a more cautious easing approach.