The euro remains under pressure against the US dollar despite a surprisingly resilient set of Eurozone PMI data, as stronger-than-expected business activity has been overshadowed by broad US dollar strength and lingering geopolitical uncertainty. While Germany and the wider Eurozone both returned to stronger expansion in July, reinforcing signs of improving economic momentum, the ECB’s decision to leave rates unchanged after June’s hike and its cautious message that energy-related inflation risks remain highly uncertain has kept markets from becoming materially more bullish on the single currency. At the same time, the dollar continues to draw support from robust US services activity, elevated Treasury yields, and expectations that the Federal Reserve will keep policy restrictive, with markets still assigning meaningful odds of another rate hike later this year. Meanwhile, escalating tensions in the Middle East, renewed trade tariff concerns, and persistent inflation risks continue to underpin demand for the greenback, even as reports of possible diplomatic progress between Iran and Pakistan have helped ease oil prices and modestly improve risk sentiment. Attention now turns to this week’s Fed meeting, where the policy statement and Chair Kevin Warsh’s guidance are expected to be the primary catalysts for the next move in EURUSD.

Sterling remains under pressure against the US Dollar despite a modest late-week rebound, with stronger-than-expected UK Retail Sales and July PMI data helping to stabilize the Pound after Thursday’s sharp selloff. However, the broader backdrop continues to favor the Dollar as escalating US-Iran tensions, safe-haven demand, and renewed expectations that the Federal Reserve may need to keep policy tighter for longer outweigh the UK’s encouraging data. Markets continue to expect the Bank of England to leave rates unchanged at 3.75% next week, with policymakers likely to maintain a cautious but hawkish stance as they assess the inflationary implications of higher energy prices stemming from the Middle East conflict. While resilient UK economic data has reinforced expectations that UK rates will remain elevated into 2026, GBPUSD continues to trade primarily as a function of broad US Dollar strength and shifting Fed expectations, leaving further upside in the Pound dependent on either an easing in geopolitical tensions or a less hawkish US rate outlook.

The yen remains under pressure as the wide interest rate differential between Japan and the US continues to drive carry trade demand, even after the Bank of Japan raised rates to 1%. While the BoJ has signaled it remains open to further policy normalization, markets broadly expect it to leave rates unchanged at next week’s meeting, limiting support for the currency. Japan’s June national CPI accelerated to 1.7% year-over-year, reinforcing expectations that inflation remains on an upward path, while Finance Minister Katayama has again warned authorities stand ready to take decisive action against excessive currency moves, keeping intervention risk elevated with USDJPY near fresh 40-year highs. However, verbal intervention has so far done little to alter the broader trend, with resilient US economic data, expectations the Federal Reserve will keep policy restrictive for longer, and renewed Middle East tensions supporting higher US yields and reinforcing demand for the US dollar. Although a modest pullback in the dollar and profit-taking have capped USDJPY’s advance in the near term, the yen’s broader outlook continues to be dictated by the persistent US-Japan policy divergence and geopolitical developments ahead of this week’s Fed and BoJ meetings.

The Australian dollar remains caught between supportive domestic fundamentals and an increasingly resilient US dollar backdrop. Stronger-than-expected Australian data, including a 76.3K jump in June employment and firmer July flash PMIs, has reinforced expectations that the RBA will maintain its hawkish bias and pushed back against near-term easing expectations. However, those positives continue to be offset by broad US dollar strength as rising Treasury yields and renewed speculation that the Federal Reserve could still deliver another rate hike have weighed on global risk sentiment. Elevated oil prices, driven by Middle East supply disruption risks, have also lifted global inflation expectations, supporting higher US yields and the greenback while reducing demand for risk-sensitive currencies like the Aussie. Mixed US PMI data offered the Australian dollar only limited relief, with softer manufacturing activity offset by a much stronger services reading that reinforced the prospect of higher-for-longer US interest rates. Attention now turns to this week’s Fed meeting, where markets will closely scrutinize Chair Kevin Warsh’s guidance for clues on whether policymakers remain prepared to tighten further, a key determinant of whether AUDUSD can recover or remains under pressure.