The euro has come under modest pressure in recent trade as renewed uncertainty around the fragile US-Iran ceasefire has driven a broader safe-haven bid into the US dollar. Reports that US forces carried out defensive strikes in southern Iran after ceasefire violations have kept markets cautious, while concerns over the Strait of Hormuz and broader Middle East energy security continue to cloud sentiment. At the same time, the euro has found some underlying support from a more hawkish shift at the ECB, as policymakers increasingly acknowledge that the latest energy shock risks prolonging inflation pressures across the Eurozone. ECB officials including Isabel Schnabel have argued that “looking through” another inflation spike is no longer an option, warning that rising energy costs are beginning to spill over into the wider consumption basket even as growth risks deteriorate. Markets have consequently moved to price a high probability of another ECB rate hike, helping to offset some of the euro’s geopolitical-driven weakness.

The yen has remained under pressure against the dollar as a combination of external and domestic fundamentals continues to favor the greenback. Heightened geopolitical uncertainty surrounding the Middle East has undercut the traditional safe-haven appeal of the yen, with markets increasingly focused on the negative implications of elevated energy prices and supply disruptions for Japan’s import-dependent economy. At the same time, the dollar has found renewed support from resilient US economic data and persistent inflation, reinforcing expectations that the Fed will keep rates higher for longer. On the domestic side, while BOJ Deputy Governor Himino reiterated that the Bank of Japan still intends to continue raising rates and gradually normalize policy, he stressed that the timing and pace of tightening would depend heavily on how Middle East developments affect Japan’s economy and inflation outlook. That conditional approach has tempered expectations for aggressive BOJ tightening, especially as policymakers remain cautious about financial conditions and bond market stability. Markets also remain alert to the risk of official FX intervention should yen weakness accelerate further beyond current levels.

The Australian Dollar has come under renewed pressure amid a broader deterioration in global risk sentiment following fresh US military strikes on southern Iran. The escalation in geopolitical tensions has supported safe-haven demand for the US Dollar and weighed on risk-sensitive currencies like the Aussie, particularly given Australia’s close exposure to global growth and commodity demand dynamics. At the same time, markets remain cautious ahead of Australia’s April CPI report, where headline inflation is expected to ease modestly from 4.6% YoY to 4.4%, though any upside surprise could revive expectations that the RBA will need to maintain a relatively hawkish policy stance for longer. More broadly, the AUD has also been influenced by shifting China sentiment and commodity price dynamics, with investors continuing to monitor the outlook for Chinese demand, iron ore prices, and the trajectory of US yields, all of which remain key external drivers for the Australian currency.