The Euro has edged up and is likely to grind higher in a choppy, low-volatility environment, with dips supported by the rising 200-day average but upside capped unless fresh US data weakens the dollar. Big banks remain constructive on the euro into 2026, targeting a move above 1.20 as eurozone growth stabilizes and the dollar fades, though January seasonality points to near-term consolidation. Persistent yen weakness and strong carry trades, alongside subdued option volatility, may also limit how aggressively EURUSD can rally for now.

USDJPY is tracking just below 160 with the yen the weakest G10 currency this week, pressured by surging JGB yields near 27-year highs, widening US-Japan yield gaps, and renewed focus on a possible snap election under PM Takaichi that could reinforce reflationary, yen-negative policies. Speculative yen longs have been largely unwound, leaving room for fresh short positioning if USDJPY breaks higher through 160, though rising intervention warnings from Japanese officials add two-way risk. Overall, markets see a heavy yen bias near term, with political headlines and intervention chatter driving volatility.

The Aussie dollar is holding comfortably above recent support as rate expectations remain largely unchanged, with markets pricing around a 30–40% chance of an RBA hike by early 2026. Job vacancies were more resilient than expected, while Australian bond yields briefly pushed higher. Policymakers continue to warn inflation is still too high, and Australia’s high G10 yields are seen as supportive for AUD, though upcoming employment and inflation data will be key for February’s RBA decision. Meanwhile, the USD outlook is more balanced as Fed cut expectations depend on data, and rising global political risks could still trigger safe-haven flows that would weigh on the Aussie.

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.

The has euro edged up as a softer dollar and renewed political pressure on the Fed prompted a reassessment of USD positioning, though markets still expect the ECB to keep rates on hold amid contained inflation and only modest growth. Major banks remain structurally bullish on the euro for 2026, but warn of near-term consolidation or mild pullbacks early in the year, with EURUSD likely to trade sideways in the 1.15–1.17 range before resuming its longer-term uptrend. Eurozone growth is seen improving gradually and inflation staying near target, supporting the currency over the medium term, while geopolitical tensions and upcoming euro area data remain key near-term drivers.

The yen has weakened further, with USDJPY tracking near a one-year high around 158, as mixed Japanese data and political uncertainty complicate the Bank of Japan’s path to policy normalization. Seasonal NISA investment outflows and speculation over a snap election by Prime Minister Sanae Takaichi — aimed at securing support for a large stimulus budget and tougher security stance — are adding pressure to the currency. Markets see a strong LDP mandate as reducing fiscal discipline and delaying BoJ tightening, reinforcing expectations for further yen weakness toward 160 per dollar, despite intervention risks.

The Australian dollar has edged to start the week, pointing back towards near 15-month highs as solid household spending, strong gold prices and elevated commodity markets provide support, despite softer labor-market signals. Markets see only modest odds of an RBA rate hike in early 2026, with policymakers focused on medium-term inflation rather than short-term data. Ongoing trade surpluses, a strengthening commodity cycle and expectations of a weaker US dollar over time continue to underpin a positive medium-term outlook for the AUD, even as geopolitical risks weigh on high-beta currencies.

The euro has been quietly consolidating, hovering near a four-week low as a firmer dollar and pre-NFP positioning weighed on sentiment. Eurozone data, however, remain relatively supportive: unemployment fell to 6.3% in November, job creation continued into December, growth in Q4 was the strongest since 2023, and inflation expectations stayed anchored just above 2%, suggesting the ECB is likely to keep rates on hold for longer. German factory orders also surprised to the upside, while geopolitical tensions rose after criticism from President Macron toward Washington and fresh Russian strikes on Ukraine.

The yen is under mild pressure but still holding within a narrow weekly range despite softer-than-expected wage data, as investors await fresh direction from upcoming US labor figures. The BOJ’s latest regional report reassured markets that Japan’s economy is still recovering and that further gradual rate hikes remain likely, supported by expectations of another strong round of wage increases. However, potential Chinese restrictions on rare-earth exports to Japan could weigh on manufacturing and slow the BOJ’s tightening path, reinforcing forecasts from major banks that the yen may weaken toward 160 per dollar or beyond over the medium term.

The Australian dollar has been under pressure, extending its pullback from a 15-month high, as weaker-than-expected November trade data and softer gold prices weighed on sentiment. The smaller trade surplus signals softer demand for key exports like iron ore, coal and LNG, while markets have slightly scaled back expectations for an RBA rate hike in early 2026. That said, the broader backdrop remains supportive for the AUD, with strong commodity prices, a rising Bloomberg Commodity Index, and the RBA signaling that rate cuts are likely over — a stance that contrasts with expected Fed easing and could help the AUD regain upside momentum.

The euro has been largely quiet in recent sessions as broader USD data and upcoming US labor releases continued to dominate price action. Eurozone December inflation returned to the ECB’s 2% target, easing underlying pressures and reinforcing expectations that rates will remain on hold, with policymakers still cautious and ECB hawks likely to resist near-term cuts. In Germany, weak November retail sales highlighted the fragile state of the consumer, while unemployment remained steady as expected. Geopolitically, Trump’s comments on Greenland drew criticism both domestically and from European leaders, who reaffirmed support for Danish sovereignty and stressed NATO-led cooperation on Arctic security.

The yen is little changed as attention remains on Japanese rates, with bond yields easing and markets still debating how quickly the BOJ can normalize policy. November wage data disappointed, with nominal pay growth slowing sharply and real wages falling faster than expected, weakening the case for near-term aggressive tightening and posing risks to household consumption. While some underlying measures suggest pay momentum remains intact, markets are likely to see the data as mildly negative for the yen. Adding to the uncertainty, rising Sino-Japanese trade tensions—especially around rare earths critical to manufacturing—could slow economic growth and reinforce expectations of a more gradual BOJ hiking path. Against this backdrop, global banks remain bearish on the yen into 2026, though sharp moves toward 158–160 could raise the risk of FX intervention without necessarily accelerating rate hikes.

The Australian dollar edged lower after weaker-than-expected November trade data showed a narrower surplus, with exports falling and imports rising, while softer gold prices also weighed. Markets have slightly pared back expectations for RBA tightening, now pricing only modest odds of a rate hike by early 2026, though medium-term inflation risks from subsidy removal and price resets continue to support the case for eventual tightening. A rising commodity complex, easing Fed policy expectations, and ongoing short-covering in AUD positioning have helped lift AUDUSD since mid-December, suggesting further gains could be driven by commodities and macro fundamentals rather than positioning alone.

The euro edged up as the dollar softened, with expectations of a stronger euro into 2026 driven by diverging central-bank paths, anticipated Fed rate cuts, and improving Eurozone growth. German inflation data showed faster-than-expected cooling, reinforcing the broader euro-area disinflation trend, though core pressures remain sticky, supporting the ECB’s relatively hawkish stance and resistance to further rate cuts. At the same time, Europe faces mounting political and geopolitical risks—from Germany’s fragile economic outlook and coalition tensions to concerns over US foreign policy moves and unresolved frictions around Ukraine—that add uncertainty to the otherwise improving macro picture.

USDJPY slipped as rising Sino-Japanese geopolitical tensions weighed on sentiment, while slightly weaker-than-expected December PMI data had little market impact. Japanese and U.S. officials remain uneasy about sharp yen weakness beyond 160, with a move above 158 likely to raise the risk of intervention, creating asymmetric risks where upside spikes face policy resistance. Although upcoming wage data are expected to show a temporary slowdown in nominal and real earnings, underlying wage momentum remains solid due to labor shortages and minimum wage hikes, supporting the BOJ’s inflation outlook. Meanwhile, China’s new export restrictions on dual-use items to Japan, though limited for now, add meaningful tail risks of further economic escalation.

The Australian dollar rose about 0.3%, hovering near a 15-month high and marking a fourth straight day of gains after November CPI data showed inflation easing more than expected. While annual inflation slipped to 3.4%, yields stayed elevated and markets continue to price in some chance of near-term RBA rate hikes, though expectations have softened slightly since before the data. In contrast, anticipated ongoing Fed easing through 2026 leaves the RBA’s relatively firmer stance broadly supportive for the AUD against the US Dollar.

The euro is stabilizing after recent lows as the dollar’s rebound faded, with technical signals suggesting the broader bullish trend in EURUSD remains intact despite short-term pressure from safe-haven dollar demand. While geopolitical developments, including Venezuela, have added a brief bearish bias, they could ultimately support the euro longer term by contributing to lower oil prices and a softer, more diversified global reliance on the dollar. Near term, dollar moves should dominate amid heavy US data, with weaker manufacturing data increasing expectations of Fed rate cuts. Looking ahead to 2026, a more dovish Fed, improving eurozone growth, and a still-hawkish ECB—unconcerned about inflation undershooting—continue to underpin a constructive outlook for the euro.

The yen was broadly steady as high 10-year JGB yields near multi-decade peaks keep attention on fiscal risks and expectations of further BOJ tightening, with markets pricing up to two more 25bp hikes. We expect a mildly yen-supportive tone over the next one to two weeks, favoring consolidation or modest appreciation rather than a clear USDJPY breakout, unless U.S. yields rise sharply or BOJ hawkishness fades. Authorities in both Japan and the U.S. remain uneasy with yen weakness beyond 160, and moves above 158 would raise intervention risks, creating asymmetric pressure against sharp dollar gains. While upcoming wage data may show softer headline growth and weaker real earnings, underlying wage momentum remains firm due to labor shortages and minimum-wage hikes, supporting the BOJ’s view that inflation pressures persist. Recent declines in Japan’s monetary base also reflect the BOJ’s shift away from ultra-easy policy as rates rise and bond purchases are tapered.

The euro slipped about 0.4% to 1.1675, a roughly 2½-week low, largely reflecting a stronger dollar, with near-term moves still driven more by USD dynamics ahead of upcoming euro-area data. Looking into early 2026, the outlook for EURUSD is modestly positive after strong 2025 gains, supported by expectations that ECB rates will stay on hold while the Fed may cut, alongside improving euro-area growth. With inflation near target and ECB policymakers seen as resistant to further easing, markets see policy divergence as euro-supportive. Major banks project EURUSD around 1.22–1.26 by 2026, reinforcing a constructive medium-term view despite likely near-term range trading.

The dollar is holding near a two-week high versus the yen, supported by broad USD strength and steady signals from Japan. The BOJ reaffirmed it will keep raising rates as conditions allow, while Japan’s December manufacturing PMI was revised up to 50.0, signaling a return to expansion. Looking ahead, USDJPY is likely to consolidate or see modest yen strength in the near term, though the pair remains in a high range where U.S.–Japan yield spreads can quickly favor the dollar. Over 2026, gradual yen appreciation is expected as BOJ policy normalizes and Fed rate cuts narrow yield gaps, but sharp moves above 158–160 would raise the risk of official intervention. This week’s focus is on Japan’s wage data, which may soften on a monthly basis but still reflects solid underlying wage momentum that supports the BOJ’s inflation outlook.

The Australian dollar slipped 0.3% to 0.6670 as a stronger US dollar and rising geopolitical risks outweighed support from firm gold prices, with tensions around US-China relations weighing on risk-sensitive currencies. Despite this near-term softness, the AUD has appreciated since mid-November on growing expectations that the RBA could shift toward rate hikes by mid-2026, supported by resilient consumer spending, wage growth, and inflation pressures. This contrasts with expectations for continued Fed easing, a backdrop many analysts see as broadly AUD-supportive. Australia also enters 2026 with solid fundamentals, helped by improving Chinese data and steady growth prospects, while speculative positioning remains net short, leaving scope for further short-covering if upcoming inflation and activity data reinforce the “higher for longer” RBA view.

The Euro came under some pressure after failing to hold gains, with year-end flows limiting momentum despite a broader medium-term USD bearish backdrop. The key driver remains policy divergence: the ECB is signalling patience and caution, keeping rates at 2% as inflation hovers near target, while markets still expect the Fed to deliver further easing into 2026 despite internal disagreement on timing. Spanish inflation eased slightly in December but remains above the euro-area average, reinforcing expectations that the ECB will stay on hold for longer. Looking ahead, improving eurozone growth, a narrowing US growth advantage, and concerns over US debt and valuations underpin expectations among major banks for EURUSD to rise toward 1.20–1.25 by end-2026.

The yen remains driven more by concerns over Japan’s fiscal stance and policy credibility than by a clear normalization story. While the BOJ continues to debate gradual rate hikes, arguing policy is still below neutral, Japan’s expansionary budget and structural headwinds keep the yen under pressure. Authorities have signaled readiness to intervene if USDJPY breaks above 158, which would significantly raise political pressure, even as markets watch key technical levels around 155. Longer term, views are split: some see gradual BOJ tightening and Fed easing supporting yen appreciation, while many banks still expect persistent yen weakness due to wide yield gaps, negative real rates, capital outflows, and limits on how far the BOJ can raise rates.

The Australian dollar is holding up close to its year-to-date high, supported by resilient commodity demand and expectations that the RBA may shift toward tightening as inflation risks persist. Positive but modest support has come from signs of stabilization in China’s economy, though markets remain cautious given the uneven recovery and limited policy clarity. With the Aussie among the top-performing G10 currencies this quarter, sustained gains since mid-November, strong commodities, improving global risk sentiment, and a softer US dollar backdrop are expected to support further AUD appreciation into 2026.

The euro remains up 13.7% year-to-date, with near-term price action driven more by the US dollar and a general risk-on mood than by Eurozone data. But for the moment, thin holiday liquidity limits conviction. Some strategists note EURUSD is closely tracking patterns seen during Trump’s first presidency, suggesting upside targets for 2026 could be reached as early as Q1 if the analogy holds. Geopolitically, Ukraine’s push for long-term US-backed security guarantees is modestly supportive for the euro over the medium term, though recent setbacks in peace efforts and lingering war risk cap near-term optimism. Positioning data show elevated long euro exposure, but not yet at levels that typically signal an imminent reversal.

The yen edged slightly lower as markets remain focused on Japan’s very loose fiscal policy and cautious monetary outlook. While the BOJ is debating gradual rate hikes and sees room to tighten further, softer Tokyo inflation data has reinforced a slower pace of tightening, limiting yen support. Authorities have signaled readiness to intervene if USDJPY breaks above 158, a level that would significantly raise pressure for action. Although a combination of gradual BOJ tightening and eventual Fed easing could support yen appreciation, many banks still expect the currency to remain structurally weak for years due to wide yield gaps, negative real rates, and persistent capital outflows.

The Australian dollar edged higher as precious metals stabilized after a sharp sell-off earlier in the week. The Aussie remains one of the top three performing G10 currencies this quarter, despite recent volatility driven by profit-taking in silver and gold following higher margin requirements. We continue to view pullbacks as buying opportunities, with the currency supported by expectations that the RBA could begin tightening policy in early 2026, alongside resilient domestic economic data, strong commodity demand, improving global risk sentiment, and a broadly weaker US dollar—factors that together point to continued AUD strength into 2026.