The euro has edged lower against a firmer dollar as traders turn their attention to US inflation data, with strong payrolls and hawkish Fed commentary reinforcing expectations for a December rate hike. The dollar has held up even as hopes for a US–Iran deal have pushed crude to its lowest level since August. Cheaper oil eases the drag on eurozone growth and, alongside steadier risk sentiment after last week’s tech selloff, offers the euro some underlying support. Still, political and fiscal uncertainty in France and speculation about an early departure by ECB President Christine Lagarde are weighing on the single currency. Potential successors Klaas Knot and Pablo Hernández de Cos have sounded measured on rates, with Knot seeing limited need for further tightening if energy prices stabilize and Hernández de Cos noting that broader inflation spillovers have yet to emerge.

Sterling is holding just below 1.3450 as support from last week’s Bank of England rate hike is offset by growing expectations of a Fed move in December. Governor Andrew Bailey continues to flag the upside inflation risks from higher energy prices, but Chief Economist Huw Pill has signaled that rates could stay on hold or even fall if growth stalls, leaving the three further hikes priced by UK markets vulnerable to softer data. On the US side, stronger-than-expected payrolls have pushed the implied odds of a December Fed hike to around 84%, and a firmer inflation print today could give the dollar another lift. Sarah Breeden’s remarks and Thursday’s UK GDP release are the next tests of how much tightening sterling can count on.

The yen gave back some of Monday’s gains as Japanese household spending posted its steepest annual drop since 2020, raising doubts about how quickly the Bank of Japan can tighten while consumption remains weak. The dollar also found support as uncertainty over an end to the Iran conflict kept safe-haven demand in play and markets continued to price in a December Fed hike. Even so, the BOJ’s October policy discussion showed some officials favoring a faster pace of rate hikes as underlying inflation reached target, while the risk of intervention from Tokyo helped limit the yen’s losses. US inflation is the next catalyst, with a firm reading likely to reinforce December Fed hike expectations and keep the yen under pressure.

The Australian dollar gave back some of Monday’s gains as China’s October trade surplus narrowed more than expected and rising expectations of a December Fed hike supported the US dollar. The Chinese trade figures were mixed for the Aussie. Export growth cooled but still beat expectations in dollar terms, while a much stronger pickup in imports offered a more encouraging signal for demand in Australia’s largest export market. In the US, a strong jobs report and hawkish Fed commentary have reinforced expectations of tighter policy, leaving Tuesday’s inflation release as the next major test for AUD/USD. Hopes for a US-Iran diplomatic breakthrough and the accompanying drop in oil prices could offer the Aussie some relief if they ease demand for the US dollar as a haven and temper US inflation concerns.