The euro is drawing modest support from an ECB stance that remains alert to inflation risks without signaling an urgent need for further tightening. Lagarde stressed that rising prices are largely energy-driven and have yet to feed into second-round effects, although wage negotiations remain a key area of scrutiny. This leaves policymakers balancing the risk of more persistent inflation against subdued growth, limiting the scope for a decisively hawkish shift. French debt concerns remain a potential headwind, with Lagarde placing responsibility for addressing them squarely on fiscal policy. Overall, the remarks offer some reassurance but little fresh impetus for a sustained euro rally, leaving the currency sensitive to shifts in US rate expectations and broader dollar sentiment.

Sterling is caught between reassurance over fiscal discipline and concern about the growth impact of the upcoming UK budget. Reports that Chancellor John Healey will fund new measures through tax increases or spending cuts rather than extra borrowing could help steady gilt-market confidence and ease pressure on the pound. However, the prospect of further fiscal tightening also risks weighing on household spending and business activity, potentially giving the Bank of England more room to ease if inflation allows. The key question is whether the October budget can restore confidence in the public finances without undermining growth, while shifts in US rate expectations and broader risk sentiment remain important drivers of sterling against the dollar.

The yen remains under pressure as fading expectations for an October Bank of Japan rate hike reinforce the policy divergence with a Federal Reserve still widely expected to tighten further. Reports that BoJ officials favor pausing after September’s increase have weighed on the currency, while geopolitical tensions and elevated oil prices add pressure through Japan’s reliance on imported energy and renewed demand for the dollar. However, expectations for further Japanese policy normalization and the threat of official intervention are discouraging aggressive yen selling, keeping trading relatively contained. Attention now turns to US inflation data and Fed Chair Warsh’s upcoming remarks, with any disappointment in hawkish expectations potentially pulling US yields lower and offering the yen some relief.

The Australian dollar is drawing support from stronger-than-expected Chinese trade figures, with robust growth in both exports and imports offering an encouraging signal for activity in Australia’s largest trading partner and demand for Australian commodities. Domestically, the RBA’s latest minutes highlight upside inflation risks from rising oil prices and AI-related demand, although signs of restrictive financial conditions and softer housing keep the policy outlook finely balanced. Meanwhile, Middle East tensions are tempering risk appetite, leaving the Aussie sensitive to shifts in broader market sentiment ahead of US inflation data, which could reshape Fed expectations and the direction of the US dollar.