The euro edged higher, driven more by a lack of dollar follow-through than any fresh euro catalyst. ECB officials have downplayed the move as “not dramatic,” noting the exchange rate is already baked into forecasts and signaling little urgency to push back against strength unless it moves beyond recent ranges, though some warn prolonged gains could risk inflation undershooting. The euro-area economy showed modest resilience with roughly 0.3% q/q growth in Q4 and added support from Germany’s increased fiscal spending, even as data remain mixed. Medium-term optimism around EU reforms and integration offers a structural tailwind for the euro, but stretched speculative long positioning means the currency could be vulnerable to pullbacks on negative surprises.

The yen initially firmed after Japan’s snap election but remains under pressure as markets refocus on weak fundamentals. The LDP’s landslide victory under Takaichi has revived expectations of aggressive fiscal support and tolerance for yen weakness, keeping near-term risks skewed toward further depreciation. Still, some banks argue the huge mandate could ultimately rein in fiscal excess, especially with US pressure, prospective BoJ normalization, and supportive balance-of-payments dynamics pointing to a more constructive medium-term outlook for the yen despite ongoing volatility.

The Aussie dollar is modestly higher, holding up despite softer household spending data as markets continue to focus on the RBA’s still-restrictive stance. Investors are pricing a higher-for-longer cash rate, with policymakers clearly uncomfortable about inflation staying above target amid tighter capacity constraints and demand that still needs cooling. Ongoing debate around expansionary fiscal policy is adding a hawkish undertone, reinforcing expectations that rates may not fall anytime soon. As a result, the AUD remains sensitive to upcoming inflation, jobs and growth data, with any upside surprises likely to fuel renewed tightening bets and further AUD strength.