The euro enters late February under pressure, as fading momentum and political uncertainty offset a still-stable economic backdrop. The ECB kept rates unchanged and maintained a cautious, data-dependent stance as inflation eases and growth remains modest but supported by strong services, government spending, and resilient domestic demand, even as exports face headwinds. Markets still favor buying dips, though positioning appears stretched and vulnerable to periods of dollar strength. Meanwhile, ECB President Christine Lagarde emphasized the importance of preserving and reforming the global rules-based system, warning against fragmentation into rival blocs. Upcoming PMI and wage data, particularly from Germany, are expected to show gradual improvement led by services and a stabilizing manufacturing sector, reinforcing the view of a fragile but ongoing recovery.

USDJPY has rebounded after pulling back from its February high, now recovering toward the 50-day moving average near 156. Japan’s latest CPI data showed headline and core inflation easing due to temporary factors, but underlying price pressures remain firm, reinforcing expectations that the Bank of Japan will continue normalizing policy gradually rather than rushing into near-term rate hikes. While softer inflation reduces immediate support for the yen and helps keep USDJPY elevated, persistent underlying inflation and the BOJ’s sensitivity to currency weakness leave room for yen strength if price pressures pick up or depreciation intensifies. Meanwhile, stronger PMI readings point to improving business momentum, supporting confidence as the government prepares multi-year fiscal initiatives aimed at boosting long-term investment and growth.

The Australian dollar has held recent dips comfortably above the 9 February low of 0.7007, supported by still-tight domestic fundamentals. Strong labor data—including low unemployment, solid job gains, and firm wage growth—reinforce the view that the economy remains resilient and inflation risks persist, keeping the RBA biased toward further tightening or maintaining restrictive policy. Although recent PMI data point to slowing but still-positive growth alongside renewed price pressures, expectations for at least one more RBA hike—contrasted with a Fed closer to easing—continue to underpin the AUD, encouraging investors to buy dips rather than expect sustained downside.