The euro’s recent rise has paused as ECB officials, including Vice President Luis de Guindos, expressed concerns about its rapid appreciation, fearing it could hinder efforts to maintain 2% inflation, particularly if it exceeds $1.20. ECB Chief Economist Philip Lane noted a durable shift by investors toward the euro, while one major bank warned that further euro strengthening could harm Europe’s export industry, potentially justifying more rate cuts. Despite this, markets expect only one more ECB rate cut this year, and with a potential long-term dollar bear market, the euro could continue to rise, with ECB warnings likely to intensify if it reaches $1.30 or $1.40.

A favorable trade deal could give the Bank of Japan more flexibility for a potential rate hike, but markets are skeptical about a significant increase soon, as BOJ Governor Ueda indicated at the ECB Sintra forum that Japan’s low policy rates will likely persist while inflation gradually rises. The prolonged 0.5% rate cap has led to doubts about policy normalization, weakening the yen against the dollar compared to other G10 currencies. Meanwhile, Japan faces pressure from looming U.S. tariffs under Trump, who is pushing for a trade deal by July 9 and threatening 30-35% tariffs, while Japan’s negotiator, Ryosei Akazawa, emphasizes protecting national interests ahead of a July 20 national vote.

Australia’s retail sales grew by just 0.2% month-on-month, below the expected 0.5%, signaling weaker economic momentum as consumers remain cautious despite earlier RBA rate cuts. Upcoming Household Spending data will be closely watched for further signs of reduced discretionary spending, with markets anticipating three more RBA rate cuts this year, potentially lowering the terminal rate to 2.85% or 3.10%. The Australian dollar holds steady, supported by optimism around improving US-China trade relations, easing Middle East tensions, and signs of recovery in China’s economy, Australia’s key trade partner. A potential US presidential visit to China with business leaders could further boost risk sentiment and support antipodean currencies.