The euro has remained under pressure against the dollar as escalating US-Iran tensions, higher oil prices and rising Treasury yields reinforce safe-haven demand for the greenback and expectations of another Federal Reserve rate hike. The euro’s losses have been limited by a more hawkish ECB outlook after headline Eurozone inflation accelerated from 2.9% to 3.3% in August, strengthening the case for a 25-basis-point rate increase at next week’s meeting, although the decline in core inflation to 2.4% suggests underlying pressures remain better contained. The energy shock is therefore a mixed fundamental for the euro. It supports ECB tightening expectations and European yields in the near term, but also raises concerns about the region’s growth outlook and terms of trade. For now, relative rate expectations and geopolitical demand continue to favor the dollar, with attention turning to this week’s US labor-market data for the next directional catalyst.

The pound has remained under pressure, as the renewed escalation in US-Iran hostilities has driven demand for the safe-haven dollar and weighed on broader risk sentiment. Sterling has also received limited support from the domestic policy outlook after Bank of England Governor Andrew Bailey said second-round inflation effects remain subdued and pointed to the continued softening in the labor market, suggesting the Bank can afford to monitor the situation rather than respond urgently. Although markets continue to price additional BoE tightening over the coming months, Bailey’s cautious comments have tempered the pound’s relative rate advantage. Near-term direction is likely to remain heavily influenced by geopolitical developments and Friday’s US employment report, which will shape expectations for Federal Reserve policy and the dollar.

The yen remains under heavy pressure, with USDJPY trading above 160 at its highest level since late July. Fiscal concerns have intensified after the global bond selloff pushed Japan’s 10-year yield to 3% for the first time since 1996, raising questions about the cost of servicing the country’s enormous debt burden as the government pursues aggressive investment plans. Expectations for a Bank of Japan rate hike this month have strengthened, helped by mounting pressure from US officials, but this has provided little support given Japan’s persistently wide yield disadvantage and the yen’s continued role as a funding currency. At the same time, renewed expectations for a Federal Reserve rate hike, rising oil-driven inflation risks and escalating US-Iran tensions are supporting the dollar, leaving the yen vulnerable despite growing intervention risk around current levels.

The Australian dollar has found support from stronger-than-expected domestic growth data, with the economy expanding 0.4% in the second quarter and annual growth of 2.1% also comfortably beating forecasts. The figures reinforce the view that the Australian economy remains resilient and give the RBA additional room to maintain a restrictive policy stance, particularly with inflation risks still elevated. However, the currency’s gains have been limited by renewed US dollar demand as surging oil prices and rising global bond yields revive inflation concerns and support expectations that US interest rates may remain higher for longer. Mixed US data, including softer JOLTS job openings but a still-expansionary ISM manufacturing reading, has done little to meaningfully weaken the dollar, leaving the Australian currency caught between supportive domestic fundamentals and a more challenging global backdrop