Easing US-China trade tensions have weakened the Dollar-bearish “Sell America” narrative, prompting EURUSD to retreat, though Europe’s unified fiscal push and a global capital shift bolster the Euro’s long-term strength. Trump’s tariff policies threaten the Dollar’s dominance, while markets trim ECB rate cut bets to 45 bps for 2025, with forecasts eyeing 1.75% by September as inflation dips. April’s grim ZEW surveys for Germany (-14) and the Eurozone (-18.5) highlight trade worries, with May’s outlook modestly improved but still cautious.

The US-China trade de-escalation has boosted risk appetite, prompting traders to scale back record-high net long yen positions (176,859 contracts as of May 6), while Japan’s weak March data—0.4% MoM household spending, 2.1% YoY drop in earnings, and a Confidence Index fall to 31.2—may keep the BOJ on hold. Stalled US-Japan trade talks, with the US offering only to negotiate the 14% Japan-specific tariff, face hurdles, particularly on auto tariffs, though PM Ishiba targets a July deal. A successful agreement could shift focus to BOJ rate hikes, while Finance Minister Kato plans currency discussions with US Treasury at the G7.

The US-China trade de-escalation lifted the US Dollar, paring AUDUSD gains, though reduced trade tensions favor Australia’s growth, per Deutsche Bank, with AUDUSD stabilizing as the PBOC fixed the yuan at USDCNY 7.1991. The RBA is expected to cut rates on May 20 as inflation holds steady, with 2025 rate cut bets trimmed to 82 bps from 100 bps, while Governor Bullock stresses data-driven policy. May’s consumer confidence rose to 92.1, buoyed by market rallies and rate cut hopes, but remains pessimistic below 100, while April’s business confidence (-1) and conditions (2) reflect cautious sentiment amid weak demand and rising costs.