The euro has remained on the back foot as a stronger dollar draws support from firm US data—most notably a solid upside surprise in retail sales—while heightened geopolitical tensions around Iran and the Strait of Hormuz drive a more cautious global tone. On the euro side, fundamentals remain fragile, with European Central Bank President Christine Lagarde highlighting downside risks tied to energy supply shocks, reinforcing concerns about the region’s growth outlook and leaving the currency sensitive to incoming data, including the upcoming Eurozone PMI readings for clearer direction.

The yen has been driven primarily by softer domestic fundamentals and external pressures, with USDJPY staying bid overall as Japan’s latest trade data showed strong export growth (+11.7% YoY) but an underwhelming surplus and a sharper rise in imports, highlighting the drag from higher energy costs. Rising oil prices linked to Middle East tensions are a key negative for Japan’s terms of trade, reinforcing structural yen weakness given the country’s heavy reliance on imported energy. At the same time, expectations that the Bank of Japan will remain cautious and lag global tightening continue to weigh, especially against a backdrop of resilient US data and higher yields abroad, keeping policy divergence firmly in focus and limiting any safe-haven support for the yen despite elevated geopolitical risks.

The Australian dollar has been supported by relatively firm domestic fundamentals, particularly persistent inflation pressures and a more hawkish Reserve Bank of Australia outlook, with CPI still elevated and markets leaning toward a prolonged period of restrictive policy. That said, momentum has been tempered by signs of a cooling growth pulse and sensitivity to global risk sentiment, especially as geopolitical tensions and commodity price volatility cloud the outlook. While resilient labor market dynamics have offered some support, the currency remains highly exposed to swings in risk appetite and China-linked demand, leaving it trading more defensively amid mixed global growth signals.