Euro bulls are trying to get some momentum going, but gains remain limited for now. The macro backdrop points to a stagflationary mix in the euro area, with slowing growth, weakening demand, and rising energy prices, while the ECB is becoming more focused on inflation and keeping the door open to further rate hikes. Although markets are pricing in additional tightening, many strategists doubt it will offset the drag from the energy shock, leaving the euro vulnerable in the near term—though longer term, positioning and diversification away from the USD could offer some support.

The yen remains under pressure, trading near multi-decade lows as softer headline inflation is offset by still-elevated underlying price pressures and strong wage growth, keeping the Bank of Japan on a gradual tightening path with a possible April hike still in play. Recent data point to an economy that is expanding but losing momentum, alongside only modest consumption, reinforcing a cautious normalization outlook. While structural forces like outbound investment and carry flows continue to weigh on the yen, rising intervention risks near the 160 level and building tightening expectations leave it vulnerable to periods of sharp rebound amid ongoing volatility.

The Australian dollar has come under some pressure in recent sessions. The latest weakness reflects risk aversion driven by renewed geopolitical tensions, while attention turns to Australia’s February CPI, expected to remain elevated and potentially rise further due to energy price pressures—complicating the RBA’s policy outlook. In the short term, AUD may remain volatile, but dips could attract buyers given support from yields and commodities. Markets continue to price in additional RBA rate hikes, supporting a more constructive medium-term outlook.