The euro edged slightly lower as a mildly stronger dollar ahead of US inflation data kept the pair range-bound, with near-term moves still driven by key US events. However, the recent drop in the dollar is reviving memories of the 2025 “Liberation Day” tariff shock, when the euro and gold benefited as liquid alternatives to the greenback. Investor sentiment in the eurozone has improved sharply, pointing to stabilization rather than further deterioration, and one notable research house expects a small pickup in German growth later this year, supported by stronger investment and industrial output.

USDJPY jumped to a fresh one-year high, even as Japanese 10-year yields hit their highest level since 1999, because investors remain focused on political uncertainty and expectations that PM Takaichi may pursue stimulus-heavy fiscal policy after a possible February snap election. Markets see this as delaying Japan’s policy normalization and keeping the yen weak, with some banks forecasting further depreciation. Tensions with China, including new curbs on rare-earth exports to Japan, also weigh on growth prospects and the yen, despite Japan posting a solid current-account surplus in November.

The Australian dollar is little changed after Monday’s gains, as markets continue to price in a possible RBA rate hike later this year. Strong November household spending and ongoing warnings from RBA officials that inflation remains “too high” are keeping pressure on policymakers, even as job ads point to a cooling labor market and consumer sentiment stays weak. Markets are watching December jobs and Q4 inflation data closely ahead of the February RBA meeting to assess whether a rate rise is becoming more likely.