Inflation expectations in the Eurozone rose, with March Consumer CPI forecasts over 1-year and 3-year periods reaching 2.9% (up from 2.6%) and 2.5%, respectively, surpassing the ECB’s 2% target in the short term, while the new 5-year CPI expectation of 2.1% remains more stable. Despite the ECB lowering its 2025 GDP forecast to 0.9% from 1.1% and April Economic Confidence dropping to 93.6, markets expect the ECB to prioritize growth over inflation risks, pricing in a June rate cut and potentially two more, with deposit rates possibly bottoming at 1.75%-1.50%. In Germany, the May Gfk Consumer Confidence Survey improved to -20.6 from -24.5, buoyed by a stable new government and fiscal policies, despite U.S. tariffs on German goods and a gloomy IMF outlook. Franklin Templeton is out predicting the ECB might shift toward rate hikes by year-end as Europe recovers in 2025, driven by defense and infrastructure spending, potentially reigniting inflation, while banks like JPMorgan Chase, BNP Paribas, and Danske Bank forecast a stronger Euro at 1.20 or higher against the Dollar by year-end, complicating export-driven recoveries in nations like Germany amid faltering Russia-Ukraine peace talks.

Speculators remain heavily bullish on the Yen, with CFTC data showing net long positions at 177,814 contracts as of April 22, though overbought indicators suggest caution. The BOJ is expected to hold its policy rate at 0.5% at the April 30-May 1 meeting amid trade war uncertainties, but rising Tokyo CPI (3.5% headline, 3.4% core) signals persistent inflation, potentially prompting rate hikes in the second half of the year as trade clarity emerges. Japan’s economic data shows mixed signals: March industrial production fell 1.1% MoM, reflecting tariff-related manufacturing slowdowns, while retail sales grew 3.1% YoY, marking 36 months of expansion, though a 1.2% MoM drop hints at slowing momentum. The BOJ is likely to lower its growth forecast but maintain its gradual rate-hike stance, supported by a Bloomberg survey showing no immediate policy change, with expectations for a terminal rate now at 1% and a possible hike by September.

The Australian Dollar has been showing signs of wanting to bottom out, driven by a shift away from US Dollar assets and China’s signaling of accelerated fiscal and monetary stimulus, including faster government bond issuance, potential rate cuts, and relaxed market restrictions, which should support Aussie as a CNY proxy. However, disappointing U.S. data, the ongoing U.S.-China trade tensions, and weak Chinese Manufacturing PMI figures may temper bullish momentum, potentially stalling AUDUSD below the 200-day moving average. In Australia, March inflation held steady at 2.4%, slightly above the expected 2.2%, but markets still anticipate an RBA rate cut in May, prioritizing economic growth over inflation concerns, as CPI remains below the RBA’s 2%-3% target midpoint. Meanwhile, S&P Global Ratings cautioned that Australia’s AAA credit rating could be at risk if election pledges lead to larger deficits, though polls favor a Centre-Left Labor government win on May 3, influenced by global anti-conservative sentiment tied to the “Trump effect.”