The euro remains under pressure against the dollar despite a strong September eurozone composite PMI reading of 53.1, its highest since April 2023. The survey points to improving activity and gives the ECB room to consider another rate increase, but it has done little to shift the relative policy outlook: the ECB’s deposit rate stands at 2.50%, while the Fed’s range is 3.75%–4.00%. Stronger US survey readings and expectations of further Fed tightening have kept the dollar supported, leaving EURUSD near its lowest level since late July.

The pound has come under pressure as the latest surveys point to a widening gap between UK and US growth. UK services activity slowed to a three-month low in September, while the US services reading beat expectations sharply, reinforcing the dollar’s strength and the case for further Fed tightening. The Bank of England held rates at 3.75% last week, though three members voted for a hike, and faster price increases reported by UK services firms mean inflation remains a concern. For now, softer UK growth alongside a firmer US outlook is weighing on GBPUSD, even as UK price pressures limit the BoE’s room to ease.

The yen has given back much of its recent rally as the dollar benefits from stronger US data and growing expectations of another Fed rate hike. The Bank of Japan raised rates to 1.25% last week, but its divided vote and cautious guidance left investors uncertain about how quickly it will tighten again. That leaves a substantial US–Japan interest rate gap, which continues to weigh on the yen. USDJPY has moved back above 158, bringing the risk of further Japanese intervention into focus after Tokyo’s large yen purchases earlier this summer.

The Australian dollar has been pulled between domestic rate support and a stronger US dollar. Persistent inflation has kept the RBA focused on the risk of further tightening, but softer September business surveys have raised questions about how much more the economy can absorb. At the same time, expectations of further Fed hikes have supported the US dollar and weighed on AUDUSD. Bessent’s reported extension of the US–China trade truce through January 10 offers some relief for the Australian dollar, given Australia’s exposure to Chinese demand, though it has yet to outweigh the pressure from the US rate outlook.