The euro remains under pressure as France’s fiscal problems and political uncertainty undermine confidence, with rising borrowing costs and doubts over the government’s ability to pass its budget raising concerns about wider regional spillovers. These domestic risks have outweighed the potential support from weaker US employment data, which reduced expectations for an October Fed rate hike. Meanwhile, cautious ECB communication and contained underlying inflation suggest little urgency to tighten policy, leaving the euro sensitive to French budget developments and the next round of US data, particularly today’s ISM services report.

The pound is softening as renewed dollar demand outweighs the relief from weaker US employment data and reduced expectations for an October Fed rate hike, with attention now turning to the US ISM services report. Sterling retains some support from expectations that the Bank of England could raise rates to contain persistent, energy-driven inflation, while an improved outlook for UK growth reinforces that policy bias. For now, however, those domestic supports are proving insufficient to offset the dollar’s strength, leaving the pound sensitive to incoming US data and shifts in relative interest rate expectations.

The yen is finding support from softer US employment data, which have reduced expectations for an October Fed hike, alongside continued signals of inflation vigilance from the Bank of Japan. Deputy Governor Uchida’s latest comments highlight AI investment as a potential source of stronger demand and upward pressure on prices, reinforcing the case for continued policy normalization without offering an explicit signal on the timing of another hike. Elevated US Treasury yields remain a constraint, however, leaving the yen sensitive to shifts in the US-Japan interest rate differential.

The Australian dollar remains under pressure from broad US dollar strength, with mounting French fiscal concerns encouraging demand for the greenback and weighing on risk-sensitive currencies. Softer US employment data have reduced expectations for an October Fed rate hike, offering some potential relief for the Aussie, but elevated US Treasury yields continue to support the dollar. For now, global risk sentiment and the outlook for US monetary policy are overshadowing domestic drivers, leaving the Australian dollar vulnerable while demand for the greenback remains firm.