Euro bulls are trying to reassert. The ECB kept rates unchanged at 2.00% and is taking a cautious, data-dependent approach as the Iran conflict pushes up energy prices, raising inflation risks while weighing on growth. While the ECB believes it is better prepared than in 2022 and expects inflation to rise temporarily before returning to target, markets are pricing in rate hikes—creating a disconnect. For now, the euro is finding some support, but near-term direction will be driven by rate expectations, energy price volatility, and geopolitical headlines.

The yen is slightly weaker in thin holiday trading, as Japan observes the Vernal Equinox. A meeting between President Trump and PM Takaichi highlighted ongoing tensions in the US-Japan alliance—particularly around military coordination and burden-sharing—despite progress on economic and energy cooperation. Meanwhile, the Bank of Japan kept rates unchanged but signaled a potential hike as soon as April, with policymakers increasingly focused on inflation risks tied to oil and yen weakness. With rising wages, above-target inflation, and the threat of FX intervention near 160, the outlook for USDJPY is becoming more balanced, making aggressive yen bearish positioning less attractive ahead of the next BOJ meeting.

The Australian dollar is heading for a roughly 1.6% weekly gain, remaining close to last week’s near four-year high. Recent labor data shows a still-tight but gradually cooling jobs market, with strong employment growth driven entirely by part-time roles and a rise in participation pushing unemployment slightly higher. Overall, conditions remain firm enough to keep pressure on the RBA to stay hawkish, with markets expecting further rate hikes amid persistent inflation risks. This backdrop should help support the AUD on dips, though softer full-time hiring may limit more aggressive upside.