The euro has softened as stronger US manufacturing data and expectations for a December Fed rate hike help the dollar stabilize, while concerns over France’s debt burden and political gridlock weigh on sentiment toward the single currency. Hopes for an agreement with Iran offer some support by easing energy concerns and demand for the safe-haven dollar, although the lack of a breakthrough leaves markets sensitive to geopolitical headlines. Attention now turns to the US midterm elections, where a surprise outcome could drive volatility in Treasury yields and the dollar, alongside US job openings. Beyond that, eurozone inflation, US services activity and Friday’s employment report will help shape relative interest-rate expectations and the euro’s next move.

Sterling has eased as renewed dollar support and caution ahead of the US midterm elections interrupt its recent advance, with hawkish Fed commentary keeping further US tightening in focus. The pound nevertheless remains supported by expectations that the Bank of England will raise rates by 25 basis points to 4% on Thursday, as persistent inflation and firmer domestic activity strengthen the case for action. With that increase largely anticipated, the vote split, updated forecasts and Governor Bailey’s guidance will matter more for the currency than the decision itself. Any indication that spare capacity will contain inflation, or that subsequent hikes could be more limited than markets expect, could temper sterling’s gains. US election results and upcoming jobs data provide additional risks through their implications for fiscal policy, inflation and the Fed outlook.

The yen is caught between renewed intervention warnings and uncertainty over the timing of further Bank of Japan tightening, leaving monetary policy divergence as a key headwind. Finance Minister Katayama’s warning that authorities stand ready to counter excessive or disorderly currency weakness has helped limit selling, but stronger US manufacturing data and expectations for another Federal Reserve rate increase in December are supporting the dollar. Hopes for progress in US-Iran diplomacy have tempered demand for the US currency, although the lack of a breakthrough leaves geopolitical uncertainty elevated. Attention now turns to the US midterm elections and upcoming US employment and services data, which could reshape Fed expectations and drive the next move in dollar-yen.

The Australian dollar has drawn limited support from the RBA’s widely anticipated quarter-point rate hike to 4.85%, with the split vote and cautious guidance tempering the impact of a sharply higher inflation outlook. The central bank now expects inflation to remain above 3% until late 2027, reflecting higher energy prices and persistent domestic capacity pressures, keeping the prospect of further tightening alive. However, three members voted to hold rates, and the board stopped short of signalling additional increases as weaker housing activity and household spending highlight the growing economic cost of restrictive policy. This leaves the Aussie balancing support from elevated interest rates against uncertainty over how much further the RBA will go, with Governor Bullock’s comments and the US midterm elections providing the next potential catalysts.