The Euro remains supported against the US Dollar, though gains are being driven more by broad Dollar weakness than Eurozone strength. Softer-than-expected US CPI and PPI data have reinforced expectations that the Federal Reserve can afford to remain on hold in the near term, weighing on the Greenback even as Fed Chair Kevin Warsh maintained a broadly hawkish tone by stressing that inflation remains above target and the fight for price stability is not over. On the European side, the macro picture remains mixed after Eurozone industrial production unexpectedly contracted in May, highlighting the region’s sluggish manufacturing sector. However, sticky inflation in Spain, where June HICP held at 3.6% year-over-year, has helped temper expectations for aggressive European Central Bank easing, offering some support to the single currency. That said, escalating tensions in the Middle East, elevated oil prices, and the risk that higher energy costs could reignite global inflation continue to cloud the outlook and are likely to limit the scope for a sustained Euro rally.

The Pound has been supported by a combination of broad US Dollar weakness and firm expectations that the Bank of England will need to keep monetary policy restrictive. Softer-than-expected US inflation and producer price data have prompted markets to scale back Federal Reserve tightening expectations, weighing on the Dollar and lifting GBPUSD. At the same time, renewed tensions in the Middle East and higher oil prices have reinforced concerns that inflation could remain sticky in the UK, strengthening expectations for further BoE rate hikes, with a September move fully priced and another increase later in the year still seen as a realistic possibility. Sterling has also drawn modest support from easing political uncertainty ahead of Andy Burnham’s expected transition to prime minister, although markets remain focused on the fiscal direction of the incoming government rather than the leadership change itself. Looking ahead, UK GDP, industrial production and labor market data, followed by next week’s CPI and PMI releases, will be key in determining whether the BoE’s hawkish policy outlook remains intact.

The Yen remains under pressure despite a softer-than-expected US inflation backdrop, as an initial bout of US Dollar selling following weaker June CPI and PPI data quickly faded in the face of the still-wide US-Japan interest rate differential. Although markets have scaled back expectations for additional Federal Reserve tightening after softer inflation, Fed Chair Kevin Warsh reiterated that price stability remains the Fed’s top priority, helping prevent a deeper repricing of US rate expectations. With the Fed policy rate still sitting well above the Bank of Japan’s 1.00% policy rate, the attractive carry trade continues to weigh heavily on the Yen. At the same time, traders remain cautious about chasing USDJPY higher as intervention risks linger after Japan’s previous currency operations, keeping rallies toward the recent multi-decade highs in check. Investors are also looking ahead to next week’s Japanese trade and CPI data for fresh clues on whether the BoJ can justify another rate hike this year, though inflation remains below the central bank’s 2% target. Meanwhile, renewed US-Iran tensions and elevated oil prices further complicate the outlook by worsening Japan’s energy import bill while supporting safe-haven demand for the US Dollar, leaving the broader bias tilted against the Yen despite periodic bouts of profit-taking in USDJPY.

The Australian Dollar has regained momentum and pushed back above the key 0.7000 level, supported primarily by broad US Dollar weakness after softer-than-expected US CPI and PPI data prompted markets to scale back expectations for further Federal Reserve tightening. While the Greenback has been the dominant driver of recent gains, the Aussie continues to draw underlying support from a relatively resilient domestic backdrop, with the RBA maintaining a cautious but still hawkish bias as policymakers stress that inflation remains too high and that further tightening cannot be ruled out if price pressures persist. Australia’s labor market has remained resilient and business activity has stayed in expansion territory, reinforcing expectations that rates will remain restrictive for some time. Meanwhile, mixed Chinese data has had a broadly neutral-to-supportive impact, with softer Q2 GDP growth offset by stronger industrial production and retail sales, helping ease concerns over demand for Australian exports. Looking ahead, markets will focus on Australian inflation expectations and next week’s employment data for clues on the RBA outlook, while US retail sales, Fed expectations, developments in China, and broader geopolitical risks remain the key external drivers for the Australian Dollar.