The euro is heading toward a modest weekly decline, drifting further below its 200-day average as persistent demand for the US dollar—amid ongoing Middle East tensions—continues to weigh. ECB officials, including Christine Lagarde, have struck a more cautious tone, warning that the conflict poses a meaningful global economic shock through energy disruptions and cautioning against overly optimistic market expectations. Policymakers such as Villeroy have also pushed back on early rate cut bets, highlighting inflation risks from higher energy costs and signaling that further tightening remains possible if needed. Despite this more vigilant stance, elevated oil prices and a strong dollar continue to pressure the euro by weighing on growth and real incomes.

The yen is modestly weaker on the day and remains softer on the week, continuing to underperform even as the dollar edges lower. Japan’s Finance Minister Katayama intensified verbal intervention, warning of “bold steps” as the currency hovers near key weakness levels and noting authorities have even explored intervening in oil markets to address energy-driven pressure on the yen. Still, markets remain focused on mixed signals around US-Iran diplomacy, where expectations of a prolonged conflict are underpinning safe-haven demand for the dollar and weighing on the yen.

The Australian dollar is modestly stronger, recovering from a two-month low earlier in the day, though it remains on track for a roughly 1.6% weekly decline amid sustained demand for the US dollar. Reserve Bank of Australia Governor Kent noted that rising oil prices are complicating policy by pushing inflation higher while weighing on growth, with particular concern around second-round effects on inflation expectations. More broadly, the AUD continues to lag G10 peers as ongoing Middle East tensions drive oil prices higher, reinforcing safe-haven demand for the dollar and expectations for tighter US policy into 2026.