The euro is edging slightly higher, but remains down nearly 2% this year as it continues to underperform against a stronger dollar, driven by escalating Middle East tensions and a lack of near-term diplomatic progress. The worsening geopolitical backdrop is keeping energy prices elevated, reinforcing inflation risks. ECB’s Villeroy stressed the bank’s commitment to anchoring inflation expectations at 2%, warning against premature rate cut bets and leaving the door open to further tightening if needed. Still, the euro remains pressured by a challenging mix of high energy costs, weak growth, and ongoing dollar strength.

USDJPY has pulled back after briefly pushing above 160. The yen remains weak overall despite increasingly strong warnings from Japanese officials, with Vice Finance Minister Mimura signaling that intervention could be approaching if speculative activity in FX and commodities continues, reinforcing earlier hints from Finance Minister Katayama. At the same time, the BoJ sees the economy recovering moderately with support from policy measures, but flags risks from geopolitical tensions and higher energy prices. Inflation is expected to gradually rise toward target, with the central bank leaning toward cautious rate hikes while authorities take steps to contain price pressures.

The Australian dollar is hovering near a two-month low and remains under pressure as heightened geopolitical tensions boost demand for the US dollar and weigh on risk-sensitive currencies. At home, the government has introduced temporary fuel cost relief measures and is considering further steps to ease supply chain stress. Meanwhile, expectations for additional Reserve Bank of Australia rate hikes remain in place, with upcoming meeting minutes likely to highlight internal debate over timing, even as policymakers aim to keep inflation expectations anchored. Despite this tightening outlook, the AUD continues to lag amid rising energy prices and broader risk aversion tied to the Middle East conflict.