The euro climbed for a third straight day to near four-month highs as broad dollar weakness, driven by US fiscal concerns, shifting rate expectations, and policy uncertainty, continued to support EURUSD, which has now fully reversed its late-2025 slide. Better-than-expected German PMI data added a lift, though the recovery still looks shallow amid weak growth and falling employment, while cautious ECB messaging has tempered expectations for rapid rate cuts, helping the euro via rate differentials. Markets are also weighing geopolitical risks, EU-India trade progress, and a busy euro-area data week ahead, with German Ifo today and flash GDP, inflation, and labor figures on Friday set to shape near-term direction.

USDJPY slid about 1.1% to a 10-week low near 154 as the yen strengthened on a softer dollar and growing signs that Japan’s authorities are becoming less tolerant of currency-driven inflation. While the BOJ held rates at 0.75% in what markets see as a strategic pause, Governor Ueda explicitly tied yen weakness to inflation risks and signaled readiness to act if bond yields move abnormally. The move lower in USDJPY—reportedly accompanied by rate checks in Tokyo and New York—has revived intervention fears, with officials escalating warnings and analysts even flagging potential US-Japan coordination, reinforcing a perceived ceiling near the high-150s/160 and a more constructive bias for JPY on dips ahead of key Japan data this week.

The Australian dollar has climbed for six straight sessions, buoyed by a red-hot December jobs report that boosted expectations of a February RBA rate hike and positioned the AUD as a relative winner among G10 currencies. While some economists caution that underlying labor trends look softer than the headlines, markets increasingly view the RBA as one of the more hawkish developed central banks heading into 2026, especially versus a Fed expected to ease later this year. Attention now turns to Wednesday’s CPI, with strong unofficial inflation data raising the odds of a February hike toward certainty and potentially pushing AUDUSD above its October high. Although speculators remain net short, positions are being steadily covered, adding support to the currency ahead of a busy Australian data week.