The euro remains under modest pressure as the U.S. Dollar continues to benefit from a more hawkish Federal Reserve outlook following last week’s FOMC meeting. Markets have significantly increased expectations for additional Fed tightening under Chair Kevin Warsh, supporting U.S. yields and widening the policy divergence with the ECB. At the same time, lingering uncertainty surrounding the reported U.S.-Iran peace initiative has encouraged some safe-haven demand for the Dollar after conflicting signals emerged from Washington and Tehran regarding nuclear monitoring commitments. On the euro side, expectations that the ECB is nearing the end of its tightening cycle have limited upside momentum, even as policymakers continue to stress vigilance on inflation. Traders are now focused on the latest PMI data from Germany, the broader Eurozone, and the United States for fresh insight into relative growth trends, with signs of softer Eurozone activity likely to reinforce the current bias favoring the Dollar over the single currency.

The pound has held up relatively well in the face of Prime Minister Keir Starmer’s resignation, suggesting much of the risk may have already been priced in and reflecting resilience from still-elevated UK inflation and expectations that the Bank of England will remain relatively cautious about easing policy. At the same time, a broader risk-off tone in global markets, driven by uncertainty surrounding the US-Iran peace process and lingering geopolitical concerns, has supported the US dollar and weighed on GBPUSD into Tuesday. Investors are also mindful of the Federal Reserve’s increasingly hawkish stance, which has reinforced US yield support and widened the policy divergence narrative. Attention now turns to the latest UK and US PMI data for a clearer read on economic momentum and whether sterling can continue to weather political headwinds better than many of its G10 peers.

The Yen remains under pressure as markets continue to focus on the wide interest rate differential between the U.S. and Japan, with the Federal Reserve maintaining a hawkish bias while the Bank of Japan remains cautious about tightening policy further. Although Japanese inflation remains above the BOJ’s 2% target, recent core-core inflation measures have continued to ease, reinforcing concerns that underlying domestic price pressures are moderating even as higher energy costs linked to Middle East tensions threaten to push headline inflation higher. This leaves the BOJ facing a difficult balancing act, as policymakers are reluctant to tighten aggressively in response to imported cost-push inflation that could undermine the fragile wage-price cycle and economic recovery. Meanwhile, escalating geopolitical risks and concerns over potential disruptions to energy supplies through the Strait of Hormuz have supported safe-haven demand for the U.S. Dollar, helping USDJPY hold near multi-year highs despite persistent intervention warnings from Japanese officials and growing speculation that authorities could step into the market if Yen weakness accelerates further.

The Australian dollar remains under pressure, weighed down primarily by a stronger US dollar as markets continue to price a more hawkish Federal Reserve following last week’s FOMC meeting and Chair Kevin Warsh’s emphasis on price stability. Escalating geopolitical uncertainty surrounding the US-Iran situation and concerns over the Strait of Hormuz have also supported safe-haven demand for the greenback and undermined risk-sensitive currencies such as the Aussie. That said, the broader AUD backdrop remains relatively constructive. Australia’s economy continues to show resilience, inflation remains above target, and the Reserve Bank of Australia has maintained a cautious, mildly hawkish stance, keeping the prospect of further tightening on the table if price pressures persist. Supporting this view, preliminary June PMI data surprised to the upside, with manufacturing improving to 51.2 and services recovering to 49.9, signalling stabilization in domestic activity. Meanwhile, China remains more of a stabilizing influence than a growth engine, helping to prevent a sharper deterioration in sentiment toward Australia’s outlook. For now, however, AUDUSD is being driven more by global risk appetite, Fed expectations, and geopolitical developments than by domestic fundamentals, leaving the currency vulnerable despite generally supportive medium-term fundamentals.