The euro is edging slightly higher after yesterday’s drop, which was driven by safe-haven demand for the dollar amid rising Middle East tensions and a less dovish Fed outlook. While February inflation surprised to the upside, it was largely due to temporary factors like Italy’s Winter Olympics, with underlying price pressures still contained—giving the ECB reason to stay cautious. At the same time, renewed energy price spikes tied to geopolitical risks are worsening Europe’s trade outlook and reviving inflation concerns, creating a challenging mix of slower growth and higher prices. Although markets are pricing in tighter ECB policy, the euro remains under pressure as investors weigh higher rates against rising stagflation risks and energy dependence.

The yen strengthened modestly in Asia but remained near the 160 level after the Bank of Japan kept rates unchanged at 0.75% in an 8–1 vote, with one member again pushing for a hike due to inflation risks. The BoJ maintained its accommodative stance while noting uncertainty around Middle East tensions and oil prices, and said future tightening will depend on growth and inflation trends. Rising fuel costs—driven by yen weakness and heavy reliance on imported energy—are adding pressure, even as subsidies aim to limit the impact. Inflation is expected to dip below 2% in the near term before gradually returning to target, with markets now focused on Governor Ueda’s remarks and political developments for further direction.

The Australian dollar edged higher, recovering slightly after the prior session’s sharp drop as markets absorbed a mixed jobs report. While employment rose, the gain was driven by part-time roles and accompanied by a higher unemployment rate, signaling some cooling but not enough to alter expectations for further RBA tightening. Markets still see a strong chance of another rate hike, supporting the AUD alongside Australia’s yield advantage over other major economies. Overall, the currency outlook remains constructive in the near term, though increasingly sensitive to global growth risks, commodity trends, and shifts in central bank policy.