The euro is struggling to gain upside momentum as tensions in the Middle East—particularly the unresolved US-Iran conflict—push oil prices above $100, worsening the outlook for the eurozone. Rising energy costs risk adding to inflation while growth is already slowing, keeping the ECB cautious but increasingly hawkish beneath the surface, with markets now debating potential rate hikes as early as April or more likely June. While higher rate expectations offer some support to EURUSD, the currency remains vulnerable to further energy shocks and risk aversion, and is unlikely to rally meaningfully without clearer ECB tightening signals. Recent data also showed a decline in eurozone consumer confidence, highlighting the fragile backdrop.

The yen has managed to find only mild demand thus far, despite ongoing intervention warnings from officials. In the near term, the currency remains highly sensitive to headlines, as the Bank of Japan holds rates steady and waits to assess how geopolitical shocks—especially from the Middle East—impact inflation and growth. Elevated oil prices and Japan’s reliance on energy imports keep the bias tilted toward further yen weakness, though strong wage growth, persistent inflation, and the possibility of a rate hike should help prevent a deeper or sustained decline. Overall, expectations are for only modest yen recovery from current levels.

The Australian dollar is under pressure for a third day, driven by fading optimism around Middle East tensions and renewed USD strength. The outlook remains fragile as softer global growth and geopolitical risks threaten recent gains, though dips may find support from strong commodity prices and yields. Inflation is expected to stay elevated, with rising energy costs potentially complicating the RBA’s policy outlook despite signs of slowing economic activity. Recent PMI data confirms weakening momentum—especially in services—pointing to slower growth ahead, but persistent price pressures mean the RBA still faces a challenging balance.