The euro has edged higher against the dollar early Friday, but the relative outlook for ECB and Fed policy continues to limit its upside. A December ECB hike remains the consensus among economists, though uneven eurozone growth has many expecting it to be the last of the cycle. ECB Chief Economist Philip Lane signaled that easing energy prices are only part of the picture, with further tightening hinging on how much of the earlier fuel-price surge feeds through to wages and other prices. In the US, resilient growth and stubborn inflation have kept Fed officials leaning hawkish, and markets are assigning a higher probability to a half-point hike in December. That shift is keeping the dollar supported even with the ECB still expected to raise rates.

Sterling is hovering near a four-week low against the dollar as hotter-than-expected US inflation and more hawkish Fed commentary lift Treasury yields and drive expectations for a December rate hike. Markets are also entertaining the possibility of a larger move, while renewed Middle East tensions are adding to safe-haven demand for the dollar. Expectations for another Bank of England hike in December are offering sterling only limited support, leaving GBPUSD more sensitive to shifts in the US rate outlook and global risk sentiment.

The yen remains under pressure into Friday, with USDJPY briefly trading above 160 for the first time since early September as hot US inflation data pushed Treasury yields higher and led markets to price in a December Fed hike, with some chance of a larger move. The wider US yield advantage continues to favor the dollar, while Bank of Japan board member Asada warned that further tightening could weigh on growth. Intervention risk has risen around 160 after Finance Minister Katayama warned that Tokyo would respond to rapid, one-sided currency moves and Prime Minister Takaichi confirmed close contact with US financial authorities. The New York Fed also confirmed that the US Treasury bought roughly $500 million worth of yen in July alongside Japan’s much larger intervention. Friday’s US producer price data are the next test for Fed pricing and could determine whether USDJPY makes another run at 160.

The Australian dollar slipped below US$0.6800 on Friday as rising US Treasury yields and growing expectations of a December Fed hike supported the greenback. Fed Governor Christopher Waller’s suggestion that a half-point move should be considered if core inflation stays elevated has kept the risk of a larger hike in play ahead of US producer prices. In Australia, consumer inflation expectations held at 5.3%, but markets still expect the RBA to pause after its latest hike. That divergence is weighing on the Aussie, with next week’s RBA and Fed minutes in focus for signs that either central bank could shift course.