The euro remains under pressure against the US dollar, with EURUSD hovering around one-year lows as markets continue to favor the greenback on expectations that the Federal Reserve could keep policy tighter for longer, particularly if today’s US PCE inflation data reinforces the recent run of firm inflation and resilient economic activity. While the ECB has shifted to a more hawkish tone in recent weeks and remains alert to upside inflation risks, that has been outweighed by widening US yield support and stronger demand for the dollar. For now, the euro is finding some support around the 1.1350 area as investors await the PCE report, with a hotter-than-expected reading likely to strengthen Fed tightening expectations and add further downside pressure on EURUSD.

Sterling remains under pressure against the US Dollar as UK political uncertainty continues to weigh on sentiment following Prime Minister Keir Starmer’s resignation, with investors now focused on the leadership transition and the potential for a more expansionary fiscal agenda under a new government. At the same time, the widening policy divergence between the Bank of England and an increasingly hawkish Federal Reserve continues to favor the Dollar, as markets have sharply increased expectations for further US rate hikes after recent Fed messaging. While the pound has managed to stabilize above the mid-1.31s after its recent sell-off, upside remains limited ahead of the latest US PCE inflation data, which could further reinforce the higher-for-longer US rates narrative if inflation surprises to the upside. Broader risk sentiment has also remained cautious, leaving sterling vulnerable as political uncertainty at home combines with a stronger US Dollar backdrop.

The Yen remains under pressure, with USDJPY trading just below the 162.00 level and close to four-decade highs as the wide US-Japan interest rate differential continues to favor the US Dollar and keep carry trades attractive. While recent comments from Bank of Japan officials have reinforced expectations for further policy tightening, including board member Naoki Tamura’s view that rates should gradually move toward a neutral level around 2%, markets still see Japanese rates remaining well below US levels for the foreseeable future. At the same time, the BoJ’s June Summary of Opinions highlighted growing concern over inflation risks and a willingness among some policymakers to raise rates more quickly if needed. The Yen has found only modest support from renewed intervention warnings, with Japanese officials reiterating they stand ready to act against excessive currency moves and reports of close coordination between Tokyo and Washington helping to temper, but not reverse, Yen weakness. Attention now turns to the US PCE inflation report, which could reshape expectations for the Federal Reserve’s policy path and drive the next major move in USDJPY, while easing oil prices have provided only limited relief by slightly reducing concerns over imported inflation in Japan.

The Australian dollar remains under modest pressure as broad US Dollar strength, driven by expectations that the Federal Reserve’s next policy move is more likely to be a rate hike than a cut, continues to dominate sentiment. Markets have priced in elevated odds of additional Fed tightening, while investors are awaiting the latest US PCE inflation data for fresh direction on the US rates outlook. Domestically, however, the Australian backdrop remains relatively resilient after stronger-than-expected May employment data showed the economy added 40.3K jobs and the unemployment rate edged down to 4.4%, reinforcing the view that labor market conditions remain tight. That should help keep the Reserve Bank of Australia cautious on easing and provide some underlying support for the Aussie, although for now the currency continues to be driven more by the stronger US Dollar and broader global risk sentiment than by domestic fundamentals.