The has euro edged up as a softer dollar and renewed political pressure on the Fed prompted a reassessment of USD positioning, though markets still expect the ECB to keep rates on hold amid contained inflation and only modest growth. Major banks remain structurally bullish on the euro for 2026, but warn of near-term consolidation or mild pullbacks early in the year, with EURUSD likely to trade sideways in the 1.15–1.17 range before resuming its longer-term uptrend. Eurozone growth is seen improving gradually and inflation staying near target, supporting the currency over the medium term, while geopolitical tensions and upcoming euro area data remain key near-term drivers.

The yen has weakened further, with USDJPY tracking near a one-year high around 158, as mixed Japanese data and political uncertainty complicate the Bank of Japan’s path to policy normalization. Seasonal NISA investment outflows and speculation over a snap election by Prime Minister Sanae Takaichi — aimed at securing support for a large stimulus budget and tougher security stance — are adding pressure to the currency. Markets see a strong LDP mandate as reducing fiscal discipline and delaying BoJ tightening, reinforcing expectations for further yen weakness toward 160 per dollar, despite intervention risks.

The Australian dollar has edged to start the week, pointing back towards near 15-month highs as solid household spending, strong gold prices and elevated commodity markets provide support, despite softer labor-market signals. Markets see only modest odds of an RBA rate hike in early 2026, with policymakers focused on medium-term inflation rather than short-term data. Ongoing trade surpluses, a strengthening commodity cycle and expectations of a weaker US dollar over time continue to underpin a positive medium-term outlook for the AUD, even as geopolitical risks weigh on high-beta currencies.