The euro has extended a sharp two-day decline, as the US-Israel conflict with Iran enters its fifth day. The move reflects a stagflation-style energy shock for Europe, with gas and oil prices surging amid Qatar LNG disruptions and Iran-related supply risks, pushing inflation higher while darkening the growth outlook. Although markets have shifted from expecting ECB easing to pricing a possible 2026 hike, the inflation surge is viewed as temporary and energy-driven, limiting support for the euro while risk-off sentiment and delayed Fed cuts favor the dollar. With European bonds under pressure and energy prices elevated, EURUSD remains biased to the downside unless geopolitical tensions and energy risks ease quickly.

The yen has held relatively steady on the day thus far. Japan’s February PMIs pointed to the fastest private-sector growth since May 2023, driven by solid services activity, stronger manufacturing output, and the biggest rise in new orders in about three years. Still, the currency remains under pressure due to Japan’s reliance on energy imports and the wide policy gap between the Fed and BOJ. While officials are watching markets closely and keeping the option of intervention on the table—especially if USDJPY moves toward 160.

The Australian Dollar has pulled back toward Tuesday’s 3.5-week low as rising global yields and caution around the Iran conflict weigh on higher-beta currencies. Australia’s Q4 2025 GDP rose 0.8% QoQ and 2.6% YoY, beating expectations and highlighting resilient domestic demand heading into the March RBA meeting. While policymakers are also watching inflation risks from higher oil prices, the RBA’s hawkish stance—emphasizing that every meeting is “live” and leaving the door open to a March hike—continues to provide underlying support for the Aussie. As a result, dips toward the 0.69–0.70 area may offer opportunities to accumulate AUD, particularly on crosses, even if broader risk sentiment and USD strength cap near-term upside.