The euro is drawing support from stronger-than-expected Eurozone growth and persistent inflation risks, reinforcing expectations that the ECB could raise rates again in December. Resilience in Germany and Spain has helped offset weakness in France, suggesting the regional economy is weathering elevated energy costs better than feared. Hawkish comments from Bundesbank President Nagel have further supported the single currency, keeping additional tightening firmly on the table and limiting the prospect of a wider policy gap with the Fed. However, France’s fiscal and political difficulties remain a headwind, with Fitch’s negative outlook revision highlighting concerns over debt sustainability. Attention now turns to German retail sales, US manufacturing data and Tuesday’s US midterm elections, which could influence the dollar through shifts in expectations for fiscal policy and the broader economic outlook.

Sterling has started the week on a firmer footing, supported by expectations of tighter Bank of England policy and a softer US dollar as hopes for progress in US–Iran diplomacy reduce demand for safe havens. Markets are anticipating a quarter-point rate increase at Wednesday’s BoE decision, leaving the pound sensitive to the vote split and guidance on whether further tightening will be needed. With a hike already widely expected, sustained support will depend on how strongly policymakers signal concern over persistent inflation. Meanwhile, US business surveys and Friday’s employment report will help shape the dollar outlook, with Middle East developments remaining an important driver of broader risk sentiment.

The yen has come under renewed pressure as uncertainty over the timing of the Bank of Japan’s next rate increase keeps attention on Japan’s still-unfavorable interest rate differentials. The BoJ’s less hawkish messaging has tempered support from expectations of further policy normalization, while fresh warnings from Finance Minister Satsuki Katayama about action against excessive or disorderly currency weakness have offered little immediate relief. Meanwhile, resilient US activity and persistent inflation pressures continue to underpin expectations of further Federal Reserve tightening, supporting the dollar’s yield advantage. Hopes for progress in Middle East diplomacy could temper dollar demand, although elevated oil prices and the risk of renewed confrontation remain concerns for Japan’s energy-dependent economy. Overall, the yen remains vulnerable without clearer signals of BoJ tightening, while intervention risk could increasingly restrain the pace of depreciation.

The Australian dollar has come under modest pressure as disappointing Chinese official PMI data raised concerns about demand from Australia’s largest trading partner, while geopolitical uncertainty supported safe-haven demand for the US dollar. However, expectations for a 25-basis-point RBA rate hike on Tuesday, driven by persistent domestic inflation pressures, are providing an offset and keeping traders cautious about extending bearish positions. The key focus is whether the RBA delivers the expected increase and signals further tightening, with the guidance likely to determine whether interest rate support can outweigh concerns about China and broader risk sentiment.