The Euro edged up, sitting just below the key 1.20 level as broad dollar weakness continues to drive a shift out of USD and into the euro, with investors increasingly uneasy about U.S. political and policy risks. While Washington appears comfortable with a softer dollar, and talk of a “strong dollar policy” is unlikely to reverse the trend, further euro gains may meet resistance from ECB officials, who are already warning that a stronger currency could damp inflation and exports and push policy in a more dovish direction. Meanwhile, Germany’s latest consumer confidence data showed a modest improvement, suggesting tentative stabilization in demand, but conditions remain weak—leaving euro strength as a continued headwind and reinforcing the ECB’s cautious stance.

The yen remains under pressure as U.S. officials dismissed intervention talk and Japan’s domestic political uncertainty ahead of the Feb. 8 snap election continues to weigh. While BOJ minutes hint at possible further rate hikes by April as yen weakness feeds inflation—helping stabilize yields—fiscal concerns and election risks limit confidence in sustained yen strength. Overall, intervention could drive a short-term move toward 145–146, but without stronger policy follow-through, any yen gains are likely to prove temporary.

The Australian dollar climbed to its highest level since February 2023, remaining the top-performing G10 currency this year as markets price in a more hawkish RBA. Stronger export prices and firmer Q4 inflation—especially a five-quarter high in core measures—have lifted expectations for at least one more 25bp rate hike, with futures now assigning roughly a 68% chance of a February move, though some see parts of the inflation pickup as temporary. Major banks still lean toward a hike, while a softer US dollar backdrop has added support for AUD. Overall, the RBA is viewed as one of the more hawkish developed-market central banks near term, keeping the bias toward buying dips as long as growth holds up and inflation cools only gradually.