The euro remains confined to a narrow range around the mid-1.1500s against the US dollar, with investors reluctant to take fresh positions ahead of today’s US CPI report. The single currency has struggled to capitalize on the sharp deterioration in the latest US employment data as renewed gains in oil prices, driven by continued uncertainty over the Strait of Hormuz and escalating attacks in the Red Sea, have revived inflation concerns and kept the possibility of further Federal Reserve tightening alive. Elevated US Treasury yields and safe-haven demand have consequently supported the dollar and capped EURUSD, while the ECB’s relatively cautious policy stance offers the euro little independent momentum. Germany’s final July HICP reading is also in focus, although the pair’s near-term direction will likely be determined primarily by the US inflation data and its implications for the Fed outlook.

The Pound has slipped back toward 1.3500 against the US Dollar, with the latest move driven primarily by a firmer greenback ahead of US CPI and renewed caution surrounding the Iran conflict and the Strait of Hormuz. Higher oil prices are complicating the outlook by increasing UK inflation risks, potentially keeping the Bank of England cautious about easing even as they threaten growth. The BoE held Bank Rate at 3.75% in July in a 6–3 vote, leaving sterling supported by expectations that policy will remain restrictive for now. However, one bank notes that recent pound movements have been heavily sentiment-driven, with options markets showing reduced demand for downside protection. Attention now turns to Thursday’s UK second-quarter and June GDP releases, which should provide the next major domestic test of whether the economy is strong enough to sustain the pound’s relatively resilient backdrop.

The yen remains under heavy pressure, with USDJPY climbing toward 160 as the impact of the recent coordinated US-Japan intervention continues to fade. The wide interest-rate gap between Japan and other major economies is keeping carry-trade demand alive, while concerns over Prime Minister Takaichi’s expansionary fiscal policies and the economic impact of prolonged energy disruptions are adding to the yen’s weakness. Improving Japanese business sentiment and growing expectations for another Bank of Japan rate hike, potentially as early as September, have provided little support, suggesting that investors remain doubtful that gradual policy tightening will be enough to reverse the currency’s broader decline. At the same time, rising oil prices have revived US inflation concerns, supported Treasury yields and helped the dollar recover ahead of today’s US CPI release. The yen therefore remains vulnerable, although the risk of renewed official intervention could limit the extent or speed of further losses.

The Australian Dollar has slipped mildly against the US Dollar as traders adopt a cautious stance ahead of key US inflation data, which should help determine whether the Federal Reserve raises rates in September. Domestically, the RBA’s unanimous decision to hold the cash rate at 4.35% offered the Aussie some underlying support, with Governor Bullock maintaining that another increase remains possible as inflation is still too high. However, softer consumer spending, housing activity and labor-market conditions suggest policy is already restraining the economy, leaving forecasters divided over whether further tightening will be required. Rising energy prices associated with the Middle East conflict add to Australia’s inflation risks and could keep a late-year RBA hike in play, although renewed geopolitical uncertainty is simultaneously supporting the safe-haven US Dollar and limiting upside.