The euro remains under pressure after a sharp two-day drop erased the January rally, despite a modest bounce. The decline reflects a stagflation-style energy shock tied to the Iran conflict, which has driven oil and European gas prices sharply higher while euro-area inflation has already surprised to the upside. Because Europe is highly dependent on imported energy priced in dollars, rising fuel costs act as a direct economic “tax,” weakening the euro even as they complicate ECB policy by keeping inflation elevated and growth uncertain. As long as energy prices stay high and central banks remain cautious, the balance of risks still favors further downside.

The yen is trying to hold onto recent gains on the back of  concerns about potential intervention. Japan’s Finance Minister Katayama reiterated that both Japan and the US could take “decisive action” under the G7 stable currency framework, with recent rate-check activity reminding markets that coordinated signalling can quickly trigger a yen squeeze. Short-dated options show rising demand for yen protection, suggesting traders are hedging near-term event and intervention risk rather than positioning for a broader yen bull trend. While risk aversion and falling US Treasury yields could support the yen, the Bank of Japan is still cautious about tightening policy given global uncertainties, meaning a sustained JPY rally may require either deeper risk-off conditions or a disorderly move in USDJPY toward the 160 “danger zone.”

The Australian dollar is under a little pressure, putting it on track to snap a six-week run of gains. January data was mixed, with the trade surplus narrowing to A$2.6b from A$3.4b as exports slipped 0.9%, while imports rose 0.8%, suggesting firmer domestic demand. Household spending rose 0.3% on the month but the annual pace of 4.6% came in below expectations. With Q4 GDP confirming solid economic momentum and steady private investment, dips toward the 0.69–0.70 area—particularly if driven by geopolitical headlines or yield swings—may offer opportunities to selectively accumulate AUD ahead of the mid-March RBA meeting, though escalating global growth concerns could still pressure the currency in the near term.