The euro remains under pressure as the dollar draws support from the Fed’s recent rate hike and continued concern about inflation, while geopolitical tensions sustain demand for the US currency. In Europe, heavy losses for Chancellor Merz’s party in German state elections have added political uncertainty, and September’s drop in euro area consumer confidence has raised concerns about the effect of higher energy costs on growth. The ECB’s own rate hike and warning that inflation will remain above target leave room for further tightening, but so far that support has been outweighed by the stronger dollar and weaker European sentiment.

The pound remains under pressure against the dollar, with the contrast between the two central banks still the main driver: the Fed raised rates last week and signaled further tightening, while the Bank of England held rates steady as it weighs inflation risks against weaker growth. Middle East uncertainty has also supported demand for the dollar. Stronger UK retail sales have offered sterling some support, and the recent fall in oil prices has eased inflation concerns, but neither has reversed the broader move. Attention now turns to the UK and US flash PMIs for a clearer read on growth and the outlook for rates.

The yen remains under pressure despite last week’s Bank of Japan rate hike, as cautious BoJ guidance and the Fed’s hawkish stance keep the US-Japan interest rate gap in focus. The recent decline in oil offers some relief for Japan’s import bill, but has yet to outweigh the dollar’s support from US rate expectations. The Takaichi–Trump meeting reinforced cooperation on investment and economic security without providing an immediate currency catalyst, while the risk of Japanese intervention remains a restraint on further yen weakness.

The Australian dollar has come under pressure as September’s preliminary PMIs pointed to slower growth: manufacturing slipped into contraction at 49.3, while services eased to 51.4 and the composite index fell to 50.8. A firmer US dollar has added to the pressure after the Fed’s latest rate hike. The decline in the Aussie has been tempered by a hawkish RBA, however. Governor Bullock said upside inflation risks may be materializing and that the bank will weigh them when deciding whether to raise rates again. The currency is therefore caught between softer Australian activity and the prospect of further tightening on both sides of the Pacific.