The European Central Bank is cautiously maintaining its 2% deposit rate, awaiting December’s economic forecasts to evaluate inflation stability near the 2% target. While some ECB officials advocate for rate cuts to prevent inflation from falling too low, others see no urgency unless economic conditions worsen significantly, emphasizing a data-driven approach. In contrast, the U.S. Federal Reserve may be shifting toward accepting higher inflation, possibly around 3%, due to rising government debt, highlighting a divergence in central bank policies. Meanwhile, despite France’s credit concerns, the Eurozone remains stable, with upcoming data like Consumer Confidence and PMI potentially influencing the euro.

The Bank of Japan maintained its key interest rate at 0.5% as expected, but signaled a shift from its ultra-loose monetary policies by planning to sell Jpy$620 billion of its Jpy$75 trillion ETF holdings annually, a process that could take over 100 years. This move, along with potential rate hikes later this year, led to a drop in Japanese stocks, reflecting investor concerns despite the gradual pace. The BOJ’s policy shift, marked by two dissenting votes for a rate hike and upcoming meetings in October and December, suggests growing pressure for tighter policy, influenced by factors like U.S. tariff impacts and political changes, including the Liberal Democratic Party leadership race on October 4, where Shinjiro Koizumi’s lead could support further BOJ normalization. Key data releases this week, including PMI, PPI Services, and Tokyo CPI, along with BOJ meeting minutes, will provide further insights.

RBA Governor Michele Bullock noted that Australia’s economy is performing as expected or slightly better, with inflation within the 2–3% target and unemployment near full employment, though the focus remains on sustaining inflation control. This cautious outlook led to a slight rise in bond yields and a stronger Australian dollar, despite market expectations for a November rate cut. Consumer spending is rebounding among middle-income households, but the labor market shows signs of slowing, and global uncertainties like US trade policies and weaker Chinese demand pose risks. The RBA believes its current policy provides flexibility to manage these challenges. A recent “productive” Xi-Trump phone call signals potential improvement in US-China relations, which could boost high-risk currencies like the AUD if tensions ease further at the upcoming APEC summit. Key Australian data, including September PMI and August inflation, is due this week.