The euro is holding much of this week’s rebound after bouncing off key technical support, as easing risk headlines helped stabilize the dollar without driving a fresh leg higher for EUR. Meanwhile, one major European bank research note warning of gradual European portfolio rebalancing away from US assets has sparked an unusually strong pushback from both a CEO and the US Treasury Secretary, underscoring how sensitive Washington is to the idea of “weaponizing” US assets given America’s large negative international investment position. Recent market moves — weaker US equities and dollar alongside rising long-dated Treasury yields — suggest investors are already demanding a higher premium for US political and fiscal risk, with the Greenland and tariff talks now the next potential flashpoint.

USDJPY has edged up, keeping the yen under pressure as fiscal worries persist and the BoJ begins its two-day meeting, where rates are expected to stay at 0.75% but with a more cautious tone on yen weakness and inflation risks. Markets see the January 23 decision and Governor Ueda’s press conference as a high-volatility event, with no hike likely keeping USDJPY elevated, though any hint of an easier path to future tightening could trigger a sharp yen rebound. Near term, rising JGB yields and political uncertainty are weighing on Japanese assets and the yen, but over time higher domestic yields and policy normalization should improve the yen’s fundamental appeal and support a stronger currency after the current stress phase fades.

The Australian dollar led gains to fresh yearly highs after a strong December jobs report showed a 65,200 increase in employment and a drop in unemployment to a seven-month low of 4.1%. Markets have quickly shifted to a more hawkish RBA outlook, now pricing around a 60% chance of a February rate hike, with bank forecasts split and the meeting seen as genuinely “live.” Recent data point to resilient demand and still-sticky inflation, keeping tightening expectations elevated, while speculators remain net short AUD but have sharply reduced those positions since November.

The euro eased after the prior session’s rally, but remains supported by a sharp jump in Germany’s ZEW expectations index to its highest level since mid-2021, reflecting optimism around large fiscal programs and the view that 2026 could mark a turning point for Europe’s economy. ECB officials signaled rates are likely to stay on hold with a mild easing bias, helping limit EUR downside, while Trump’s tariff threats and clashes with Europe have unsettled markets and raised longer-term risks for the dollar, highlighted by a Danish pension fund’s decision to exit its US Treasury holdings over policy concerns.

The yen is holding relatively steady despite a difficult domestic backdrop marked by fiscal worries and election uncertainty. While weak fundamentals and politics continue to weigh on the currency, sharply rising JGB yields, growing expectations for BOJ rate hikes and the risk of FX intervention near 160 are making further dollar gains increasingly asymmetric over the next couple of weeks. Markets expect the BOJ to hold rates at its 23 January meeting, but with officials paying closer attention to yen weakness and inflation, any move through 160 could prompt either a policy shift or direct intervention, keeping volatility high.

The Aussie dollar dipped slightly after retesting recent highs, as markets look ahead to Thursday’s labor data and a genuinely “live” February RBA meeting. Investors are pricing the most aggressive tightening path in G10 for 2026, contrasting with expected Fed cuts and underpinning AUD support, while domestic data point to resilient demand and still-elevated inflation. Bank forecasts are split on a February hike, and positioning shows specs remain net short but have covered sharply since November, suggesting consolidation ahead as traders wait for fresh catalysts.

The euro edged up as a softer dollar followed President Trump’s threat of tariffs linked to the Greenland dispute, reviving political risk just as European assets had been attracting fresh inflows. European leaders condemned the move, the EU froze approval of a July trade deal, and lawmakers are weighing retaliatory tools, warning of a serious rupture in transatlantic ties. While markets see uncertainty over whether the tariffs will be implemented, analysts note even a 10% levy could shave about 0.1%–0.2% off euro-area GDP, with Germany most exposed, and keep attention on Europe’s political response and today’s ZEW sentiment data.

The yen has edged slightly stronger but remains under pressure, with USDJPY still holding near multi-month highs as rising long-term JGB yields, fiscal easing concerns under PM Takaichi, and the Feb. 8 snap election keep investors cautious. Markets are positioning for a continued “sell-yen” macro mix of looser fiscal policy offsetting any BOJ tightening, though heavy speculative shorts leave the currency vulnerable to sharp squeezes on any BOJ hawkish surprise, intervention risk, or global risk-off move.

AUD has regained momentum and is one of the best-performing G10 currencies versus the dollar. Strong December inflation data points to sticky Q4 CPI, keeping the RBA firmly in “hold or hike” mode, with markets pricing around 40bp of tightening this year — the most hawkish path in G10. With inflation likely to stay above target well into 2026 and some major banks forecasting a hike as early as February, Australia stands out as a rare tightening outlier, reinforcing the bullish AUD narrative even as speculative shorts are gradually being unwound.

Europe is facing fresh tensions with the Trump administration after Trump announced a 10% tariff from Feb. 1 on countries backing Greenland against US pressure, with a threat to raise it to 25% unless a deal is reached to purchase the territory. Rather than weakening the euro, the news has helped spark a rebound, as markets see the dispute as a potential catalyst for stronger European political unity. One European bank warns the standoff could strain the Western alliance, while France is pushing for a coordinated EU response. Meanwhile, investors are watching key eurozone data this week, including Germany’s ZEW survey and January PMI readings.

The pair has dipped on profit taking and heightened sensitivity to intervention rhetoric, with both Japanese officials and US Treasury Secretary Bessent stepping up verbal warnings. The BoJ is expected to hold rates at 0.75% this week, with markets watching for any hints on the timing of the next hike, still seen only in the second half of the year, even as yen weakness is increasingly viewed as a trigger for earlier tightening rather than a reason to delay. For now, 160.00 remains a key near-term line in the sand, with political and fiscal risks offsetting any support from potential BoJ hawkish signals, while upcoming bond operations, auctions and inflation data will be closely watched.

The Australian dollar is the top-performing G10 currency versus the US dollar so far this year, supported by strong domestic data, resilient household spending, and a hawkish RBA that is seen more likely to hike than cut rates. While weaker Chinese demand is a near-term headwind, expected stimulus, a firmer yuan, and strong Chinese trade flows could offset the drag. Markets still price around 40bps of RBA hikes this year, and with US dollar weakness expected over 2026, AUD upside remains intact — though near-term moves will stay highly data-dependent.

Recent U.S. data continue to look far more resilient than weak euro-area numbers. Germany returned to modest growth in 2025 after two years of contraction, helped by a big shift toward defense and infrastructure spending, but the recovery remains fragile amid weak exports, a manufacturing slump, and rising Chinese competition. While some see echoes of West Germany’s successful industrial pivot in the 1980s, markets remain unconvinced. The Euro is struggling to gain traction as the euro-area trade surplus narrows, imports outpace exports, and ECB projections point to only around 0.2% GDP growth in Q4 with clear downside risks.

We’ve been seeing some Yen demand on long USD profit-taking and intervention talk, with U.S. and Japanese officials stepping up the jawboning. While the BOJ is likely to stay on hold in the very near term, officials are increasingly signalling that a persistently weak yen could actually bring forward future rate hikes, as depreciation is pushing up import prices and keeping inflation near or above target. For now, wide yield differentials and a gradualist BOJ keep the yen biased weaker, but the growing economic and political costs of a cheap currency mean that further losses raise the risk of a stronger policy response or FX intervention.

Markets are increasingly pricing a possible RBA rate hike by mid-2026, with some economists even flagging February as a risk, though views remain split as others expect rates to stay on hold until inflation proves more persistent. The next key test will be December jobs data (Jan 22) and Q4 inflation (Jan 28) ahead of the Feb 2–3 RBA meeting. AUD upside remains cautious amid sticky US inflation, rising geopolitical risks, and uncertainty around Trump-related developments, while speculators have sharply reduced short positions and now appear to be waiting for fresh catalysts.

The Euro is consolidating, remaining under mild one-month pressure despite a supportive 200-day moving average. Major banks stay constructive on the medium-term outlook, expecting a move above 1.20 in 2026 as eurozone growth stabilizes and the dollar weakens, though January seasonality points to near-term consolidation or a modest pullback. ECB officials say inflation is on track around 2% but warn that global uncertainty and trade tensions are weighing on growth, while Germany’s GDP data this week is expected to confirm an economy stuck near stagnation.

The yen is struggling to hold recovery gains after officials stepped up intervention rhetoric. Markets see a potential early election and a strong showing for Takaichi as reinforcing the reflationary “Takaichi trade” of higher yields and a weaker yen, with some calling for a move toward 160 or higher, though much of that story already looks priced in. While a decisive win could still see USDJPY test the 160–162 area, risks are two-sided: a narrow victory, a more cautious policy tone, or a hawkish BOJ or dovish Fed could trigger consolidation or even a sharp yen rebound.

The Australian dollar edged lower as domestic data softened, with inflation expectations easing slightly and bond yields dipping, reinforcing the view that the RBA is likely to keep rates on hold for now. Job vacancies continue to fall but at a much slower pace, signalling stabilizing labor conditions. Markets see only modest odds of a rate hike before mid-2026, with upcoming employment and inflation data set to be key. In the US, expectations for Fed cuts remain but are increasingly data-dependent, keeping investors cautious amid rising geopolitical risks.

The Euro has edged up and is likely to grind higher in a choppy, low-volatility environment, with dips supported by the rising 200-day average but upside capped unless fresh US data weakens the dollar. Big banks remain constructive on the euro into 2026, targeting a move above 1.20 as eurozone growth stabilizes and the dollar fades, though January seasonality points to near-term consolidation. Persistent yen weakness and strong carry trades, alongside subdued option volatility, may also limit how aggressively EURUSD can rally for now.

USDJPY is tracking just below 160 with the yen the weakest G10 currency this week, pressured by surging JGB yields near 27-year highs, widening US-Japan yield gaps, and renewed focus on a possible snap election under PM Takaichi that could reinforce reflationary, yen-negative policies. Speculative yen longs have been largely unwound, leaving room for fresh short positioning if USDJPY breaks higher through 160, though rising intervention warnings from Japanese officials add two-way risk. Overall, markets see a heavy yen bias near term, with political headlines and intervention chatter driving volatility.

The Aussie dollar is holding comfortably above recent support as rate expectations remain largely unchanged, with markets pricing around a 30–40% chance of an RBA hike by early 2026. Job vacancies were more resilient than expected, while Australian bond yields briefly pushed higher. Policymakers continue to warn inflation is still too high, and Australia’s high G10 yields are seen as supportive for AUD, though upcoming employment and inflation data will be key for February’s RBA decision. Meanwhile, the USD outlook is more balanced as Fed cut expectations depend on data, and rising global political risks could still trigger safe-haven flows that would weigh on the Aussie.

The euro edged slightly lower as a mildly stronger dollar ahead of US inflation data kept the pair range-bound, with near-term moves still driven by key US events. However, the recent drop in the dollar is reviving memories of the 2025 “Liberation Day” tariff shock, when the euro and gold benefited as liquid alternatives to the greenback. Investor sentiment in the eurozone has improved sharply, pointing to stabilization rather than further deterioration, and one notable research house expects a small pickup in German growth later this year, supported by stronger investment and industrial output.

USDJPY jumped to a fresh one-year high, even as Japanese 10-year yields hit their highest level since 1999, because investors remain focused on political uncertainty and expectations that PM Takaichi may pursue stimulus-heavy fiscal policy after a possible February snap election. Markets see this as delaying Japan’s policy normalization and keeping the yen weak, with some banks forecasting further depreciation. Tensions with China, including new curbs on rare-earth exports to Japan, also weigh on growth prospects and the yen, despite Japan posting a solid current-account surplus in November.

The Australian dollar is little changed after Monday’s gains, as markets continue to price in a possible RBA rate hike later this year. Strong November household spending and ongoing warnings from RBA officials that inflation remains “too high” are keeping pressure on policymakers, even as job ads point to a cooling labor market and consumer sentiment stays weak. Markets are watching December jobs and Q4 inflation data closely ahead of the February RBA meeting to assess whether a rate rise is becoming more likely.

The has euro edged up as a softer dollar and renewed political pressure on the Fed prompted a reassessment of USD positioning, though markets still expect the ECB to keep rates on hold amid contained inflation and only modest growth. Major banks remain structurally bullish on the euro for 2026, but warn of near-term consolidation or mild pullbacks early in the year, with EURUSD likely to trade sideways in the 1.15–1.17 range before resuming its longer-term uptrend. Eurozone growth is seen improving gradually and inflation staying near target, supporting the currency over the medium term, while geopolitical tensions and upcoming euro area data remain key near-term drivers.

The yen has weakened further, with USDJPY tracking near a one-year high around 158, as mixed Japanese data and political uncertainty complicate the Bank of Japan’s path to policy normalization. Seasonal NISA investment outflows and speculation over a snap election by Prime Minister Sanae Takaichi — aimed at securing support for a large stimulus budget and tougher security stance — are adding pressure to the currency. Markets see a strong LDP mandate as reducing fiscal discipline and delaying BoJ tightening, reinforcing expectations for further yen weakness toward 160 per dollar, despite intervention risks.

The Australian dollar has edged to start the week, pointing back towards near 15-month highs as solid household spending, strong gold prices and elevated commodity markets provide support, despite softer labor-market signals. Markets see only modest odds of an RBA rate hike in early 2026, with policymakers focused on medium-term inflation rather than short-term data. Ongoing trade surpluses, a strengthening commodity cycle and expectations of a weaker US dollar over time continue to underpin a positive medium-term outlook for the AUD, even as geopolitical risks weigh on high-beta currencies.

The euro has been quietly consolidating, hovering near a four-week low as a firmer dollar and pre-NFP positioning weighed on sentiment. Eurozone data, however, remain relatively supportive: unemployment fell to 6.3% in November, job creation continued into December, growth in Q4 was the strongest since 2023, and inflation expectations stayed anchored just above 2%, suggesting the ECB is likely to keep rates on hold for longer. German factory orders also surprised to the upside, while geopolitical tensions rose after criticism from President Macron toward Washington and fresh Russian strikes on Ukraine.

The yen is under mild pressure but still holding within a narrow weekly range despite softer-than-expected wage data, as investors await fresh direction from upcoming US labor figures. The BOJ’s latest regional report reassured markets that Japan’s economy is still recovering and that further gradual rate hikes remain likely, supported by expectations of another strong round of wage increases. However, potential Chinese restrictions on rare-earth exports to Japan could weigh on manufacturing and slow the BOJ’s tightening path, reinforcing forecasts from major banks that the yen may weaken toward 160 per dollar or beyond over the medium term.

The Australian dollar has been under pressure, extending its pullback from a 15-month high, as weaker-than-expected November trade data and softer gold prices weighed on sentiment. The smaller trade surplus signals softer demand for key exports like iron ore, coal and LNG, while markets have slightly scaled back expectations for an RBA rate hike in early 2026. That said, the broader backdrop remains supportive for the AUD, with strong commodity prices, a rising Bloomberg Commodity Index, and the RBA signaling that rate cuts are likely over — a stance that contrasts with expected Fed easing and could help the AUD regain upside momentum.