The euro has come under renewed pressure, slipping back below the 1.1750 level, primarily as stronger-than-expected US inflation data has reinforced the divergence in policy expectations between the Federal Reserve and the ECB. A hotter April US CPI print (3.8% YoY, the highest since May 2023) has revived bets that the Fed may need to keep rates higher for longer or even tighten further, boosting the dollar and weighing on EURUSD. On the European side, while ECB rhetoric has turned more hawkish—with policymakers like Joachim Nagel and Martin Kocher flagging rising risks from energy prices and geopolitical tensions—the market still sees a more gradual tightening path relative to the US. Even with pricing for a near-term ECB hike firming, the euro is struggling to gain traction as relative yield dynamics, ongoing geopolitical uncertainty tied to energy markets, and softer growth momentum in the Eurozone continue to act as headwinds against a backdrop of resilient US data.

The Yen has remained under pressure, even as the policy backdrop in Japan turns incrementally more hawkish, with markets still focused on the persistent yield differential versus the US. While the latest current account data showed a record surplus—highlighting strong external balances—this has failed to translate into Yen strength, suggesting capital outflows and rate differentials continue to dominate. The Bank of Japan’s April Summary of Opinions reinforced expectations for further rate hikes, with some policymakers open to near-term tightening amid inflation risks tied to higher energy prices, and external projections such as from the OECD pointing to a gradual normalization path toward 2% policy rates by 2027. However, this tightening trajectory remains slow and cautious relative to the still-restrictive stance of the Federal Reserve, where hotter US CPI data has pushed back expectations for rate cuts and reinforced “higher-for-longer” pricing. As a result, USDJPY continues to be driven primarily by US yields and global risk dynamics, with geopolitical tensions and safe-haven flows offering only limited and inconsistent support to the Yen.

The Australian Dollar has been drawing support from a more hawkish shift at the Reserve Bank of Australia, with the central bank’s recent move to lift rates to 4.35% reinforcing a still-active tightening bias and underpinning yield support for the currency. At the same time, the Aussie continues to trade as a China proxy, leaving it sensitive to developments around US–China trade relations, with markets closely focused on the Trump–Xi summit and ongoing negotiations, where any constructive tone could further lift AUD sentiment. On the external side, stronger-than-expected US inflation has revived some Fed tightening expectations, lending the US Dollar intermittent support and tempering AUD upside, while near-term direction is also being shaped by incoming US data—particularly PPI—as well as broader risk appetite dynamics tied to global growth and trade headlines.