The euro extended declines to another yearly low as investors rotated into the dollar amid rising geopolitical tensions. While the pair has since seen dip-buying interest, markets remain sensitive to headlines and event risk, with traders now fully pricing at least one ECB rate hike in 2026 even as policymakers signal policy is already in a “good place.” Recent Eurozone data showed slightly softer Q4 growth but still supported by solid domestic demand, and Europe’s resilience—helped by stronger intra-EU trade and a firmer stance on US tariffs—has made aggressive euro selling harder to justify. Looking ahead, risks remain two-sided: energy price spikes and stagflation fears could cap EUR gains, while expectations for eventual ECB tightening may help limit downside.

The yen weakened further against the dollar in Monday’s Asian session, with USDJPY pushing towards 159. The currency is being pulled by competing forces: strong broad dollar demand and energy-import pressures weighing on the yen, while expectations for narrowing Fed–BOJ policy divergence and rising Japanese yields offer potential support. Japanese officials are increasingly acknowledging that yen weakness is feeding into inflation, and while markets doubt verbal intervention alone will have much impact, the move toward 160 keeps the risk of action alive. At the same time, stronger wage growth and persistent inflation pressures are reinforcing the case for continued BOJ policy normalization, with markets assigning meaningful odds to a possible rate hike as soon as April.

The Australian dollar fell earlier today, as global risk sentiment weakened amid escalating geopolitical tensions and a sharp rise in oil prices. Markets have responded by sharply repricing the RBA outlook, with roughly a 30% chance of a 25bp hike at the 17 March meeting and about 65bp of tightening priced for the rest of the year, reflecting growing inflation risks from higher energy costs. Australian bond yields have surged while policymakers warn that rising fuel prices could push inflation expectations higher. At the same time, softer domestic data and cautious household spending highlight a fragile economic backdrop, though some analysts still see scope for a more hawkish RBA path supporting the AUD over the medium term.