The euro is drawing support from a combination of improving global risk sentiment and a still-hawkish European Central Bank outlook. Reports that the US and Iran have reached a framework agreement to end hostilities and reopen the Strait of Hormuz have weighed on the safe-haven US Dollar, allowing EURUSD to push higher as investors unwind defensive positions. At the same time, the ECB’s recent rate increase – its first in three years – continues to underpin the single currency, with markets increasingly pricing in additional tightening as policymakers remain concerned that elevated energy costs could keep inflation pressures sticky. The central bank’s upgraded inflation forecasts, including higher projections for both headline and core prices through 2027, reinforce the view that rates may need to rise further, with September seen as the most likely timing for another move and July still a possibility. Taken together, fading geopolitical anxiety, a softer Dollar backdrop and expectations that the ECB will maintain a tightening bias are the key fundamental forces currently supporting the euro.

The Pound continues to draw support from a combination of improving global risk sentiment and the perception that the Bank of England may maintain a relatively restrictive policy stance compared with some of its peers. Sterling has been one of the stronger performers in the G10 space over the past month, underpinned by resilient inflation dynamics and expectations that the BoE will remain cautious about signalling any imminent easing in policy. While the UK economy unexpectedly contracted by 0.1% in April, markets have largely looked through the softer growth print, focusing instead on still-elevated price pressures and a labor market that has yet to show a decisive deterioration. More broadly, reports of a US-Iran peace agreement and the reopening of the Strait of Hormuz have helped lift overall risk appetite and weigh on the US Dollar, providing an additional tailwind for GBPUSD. With the BoE widely expected to keep rates unchanged this week, investors will be paying close attention to incoming inflation and employment data for guidance on how long UK interest rates may need to remain elevated, a backdrop that continues to offer underlying support to the Pound.

The Yen is trading with a firmer tone as easing geopolitical tensions following reports of a US-Iran peace framework weigh modestly on the US Dollar and support broader risk sentiment. However, the dominant driver for the Yen remains this week’s Bank of Japan policy decision, with markets widely expecting the central bank to deliver another rate hike that would lift rates to their highest level since the mid-1990s. While such a move is largely priced in, investors will be focused on any guidance around the pace of further tightening, particularly amid persistent domestic inflation pressures and concern among policymakers over the inflationary effects of prolonged Yen weakness. At the same time, USDJPY continues to hover near levels that previously triggered official intervention, keeping traders alert to increasingly forceful warnings from Japanese authorities that they stand ready to respond to excessive currency moves. On the US side, the Federal Reserve is expected to leave rates unchanged, with the market looking for clues on the future policy path under Fed Chair Warsh. Ultimately, the near-term direction for the Yen is likely to be dictated by the balance between expectations for a more hawkish BoJ, lingering intervention risks, and whether improving Middle East developments continue to undermine the safe-haven appeal of the US Dollar.

The Australian Dollar has found support at the start of the week as an improvement in global risk sentiment weighs on the US Dollar, following reports that the US and Iran have agreed to a peace deal aimed at ending hostilities and reopening the Strait of Hormuz. The easing of geopolitical tensions has helped lift higher-beta currencies such as the Aussie, while also reducing concerns about an energy-driven inflation shock that had previously supported the Greenback. That said, gains in AUDUSD could prove difficult to extend significantly, with the Reserve Bank of Australia widely expected to leave rates unchanged at Tuesday’s policy meeting and markets continuing to pare expectations for any additional tightening in the months ahead. Attention is therefore likely to shift toward the tone of Governor Bullock’s guidance and upcoming Australian inflation data for clues on the policy outlook. Meanwhile, the decline in US Dollar demand has been reinforced by a moderation in Federal Reserve tightening expectations, with market pricing for a December rate hike easing in the aftermath of the Middle East de-escalation. Even so, lingering uncertainty over the durability of the US-Iran agreement and the prospect of renewed geopolitical tensions could continue to generate bouts of volatility and limit the Australian Dollar’s upside potential.

The Euro remains supported by a more hawkish shift in ECB expectations following this week’s rate hike, with policymakers emphasizing that elevated energy prices linked to the Middle East conflict are increasingly feeding through into broader inflation pressures. Markets are now debating whether the move was a one-off adjustment or the beginning of a more sustained tightening cycle, especially after ECB officials including Bundesbank President Nagel stressed that all options remain on the table for July. Recent German inflation data reinforced this view, with core price pressures picking up despite a modest easing in headline inflation, highlighting the risk of persistent second-round effects. At the same time, the common currency has struggled to extend gains against the US Dollar as escalating tensions involving Iran and renewed concerns over disruptions to oil flows through the Strait of Hormuz have boosted safe-haven demand for the Greenback. As a result, EURUSD remains caught between a more resolute ECB determined to prevent inflation expectations from becoming unanchored and a geopolitical backdrop that continues to underpin the USD’s defensive appeal.

The Pound is trading with a mildly constructive tone as investors look through a softer set of UK growth figures that largely matched expectations and therefore failed to materially alter the Bank of England outlook. UK GDP contracted by 0.1% in April following a 0.3% expansion in March, reflecting weaker services activity, although manufacturing output surprised to the upside and construction activity remained resilient. More importantly, the broader picture continues to point to an economy that is slowing rather than stalling, with GDP still expanding by 0.7% over the three months to April. Sterling has also found support from the view that persistent inflation pressures could keep the Bank of England cautious about delivering aggressive policy easing. Meanwhile, renewed tensions in the Middle East and concerns about potential disruptions around the Strait of Hormuz have boosted safe-haven demand for the US Dollar, limiting the Pound’s upside rather than triggering a broader selloff. As a result, GBPUSD has remained relatively steady, with markets balancing signs of moderating UK growth against expectations that UK interest rates may stay higher for longer.

The Yen remains under pressure as escalating tensions between the US and Iran continue to support the safe-haven US Dollar, with investors increasingly concerned about the broader economic implications of prolonged instability in the Middle East. At the same time, USDJPY gains have been tempered by mounting expectations that the Bank of Japan could deliver another rate hike at next week’s policy meeting following stronger-than-expected Japanese producer price data, reinforcing the view that policymakers are becoming more uncomfortable with persistent domestic price pressures and the inflationary effects of a weak currency. Markets are also increasingly alert to the risk of official intervention should USDJPY extend materially beyond the 160 threshold, a level closely associated with previous Japanese authorities’ efforts to stabilize the Yen. Looking ahead, the BoJ meeting and Governor Ueda’s guidance on the pace of further normalization remain key domestic catalysts, while developments in the Middle East and incoming US inflation data will continue to shape expectations around Federal Reserve policy and the broader direction of the pair.

The Australian Dollar is trading on the back foot as renewed geopolitical uncertainty in the Middle East fuels demand for the safe-haven US Dollar, with conflicting signals around a potential US-Iran agreement keeping investors cautious and concerns lingering over the security of the Strait of Hormuz. The Aussie has also been pressured by stronger-than-expected US inflation data and resilient labor market conditions, which have reinforced expectations that the Federal Reserve may need to deliver at least one additional rate hike this year, widening policy divergence risks. Domestically, the focus is shifting to next week’s RBA meeting, where policymakers are widely expected to leave the cash rate unchanged at 4.35% after three consecutive hikes, although the outlook beyond June remains less certain. While stronger Chinese trade data has offered some support given Australia’s close economic ties with China, softer Australian consumer sentiment and signs of slowing domestic demand have tempered optimism. At the same time, market participants continue to debate whether the RBA’s tightening cycle has truly ended, with some economists still seeing scope for additional hikes later this year should inflation prove more persistent than anticipated, leaving the Australian Dollar highly sensitive to incoming inflation, labor market and China-related developments.

The Euro is finding support ahead of Thursday’s ECB policy decision, with markets widely expecting the central bank to deliver its first rate hike in three years as policymakers seek to prevent elevated energy costs from feeding through into broader inflation pressures. Investors will be focused not only on the rate decision itself, but also on updated staff projections and President Lagarde’s guidance on whether additional tightening remains likely in the months ahead, with markets continuing to price in further rate increases this year. At the same time, gains in the single currency could be tempered by heightened geopolitical uncertainty after fresh US strikes on Iran and threats to shipping through the Strait of Hormuz boosted demand for traditional safe havens, underpinning the US Dollar. As a result, the near-term direction for EURUSD is likely to hinge on the balance between a potentially hawkish ECB message and the extent to which escalating Middle East tensions continue to support the Greenback.

The Pound remains caught between increasingly hawkish Bank of England expectations and mounting concerns that those rate expectations are being driven by inflationary pressures rather than underlying economic strength. Markets continue to price in the possibility of at least one 25bp BoE rate hike by year-end as elevated energy prices linked to Middle East tensions threaten to push UK inflation higher in the months ahead. However, Sterling’s upside has been constrained by signs of a weakening domestic economy, with unemployment elevated, payroll growth deteriorating and forecasts pointing to softer UK activity data. Political uncertainty has also weighed on sentiment following renewed questions around Prime Minister Starmer’s authority, limiting the Pound’s ability to benefit from rising gilt yields and tighter policy expectations. Externally, developments in the Middle East remain a key driver, with escalating US-Iran tensions supporting safe-haven demand for the US Dollar and acting as a headwind for GBPUSD. At the same time, softer US inflation components have tempered some of the Dollar’s strength, leaving traders focused on upcoming US PPI data and next week’s packed UK calendar featuring CPI, labor market figures and the Bank of England decision, which could prove pivotal in determining Sterling’s near-term direction.

The Yen remains under pressure as USDJPY consolidates near the 160.50 area, a level closely associated with Japan’s last major FX intervention, though renewed speculation of official action is helping to limit further upside in the pair. Markets have increasingly priced in a hawkish Bank of Japan outcome next week following a sharp acceleration in Japan’s factory-gate inflation, with expectations now firmly centered around a 25bp rate hike that would lift policy rates to their highest level since the mid-1990s. However, the Yen’s inability to strengthen despite the prospect of tighter policy underscores the continued importance of wide US-Japan yield differentials, particularly after stronger-than-expected US labor market data reinforced expectations that the Federal Reserve will keep rates elevated for longer. At the same time, escalating tensions in the Middle East, including renewed US strikes on Iranian targets and Tehran’s threats of further retaliation, have supported broader safe-haven demand for the US Dollar. Investors are now focused on upcoming US inflation data and next week’s BoJ decision, with any upside surprises in US prices likely to push USDJPY deeper into intervention territory and intensify scrutiny over Tokyo’s willingness to step into the market once again.

The Australian Dollar is attempting to stabilize back above the 0.7000 handle, drawing support from a softer US Dollar after the latest US inflation data eased concerns about an immediate acceleration in underlying price pressures and prompted investors to trim aggressive Fed expectations. However, the Australian Dollar’s upside remains constrained by a more cautious outlook for the Reserve Bank of Australia, with markets continuing to scale back expectations for additional RBA tightening following softer domestic data. At the same time, escalating geopolitical tensions in the Middle East, including fresh US strikes on Iran and Tehran’s threats to disrupt shipping through the Strait of Hormuz, have kept energy markets on edge and revived concerns that higher oil prices could prolong global inflation pressures. Stronger Chinese producer price data, meanwhile, has reinforced the view that upstream price pressures are building across the region, although lingering uncertainty around China’s broader growth outlook continues to temper enthusiasm toward the China-sensitive Aussie. Looking ahead, traders remain focused on incoming US data, particularly the PPI release, for clues on the Fed’s policy path, while the balance between fading RBA tightening expectations and swings in global risk sentiment is likely to remain the dominant driver for the Australian Dollar in the near term.

The Euro has traded in a relatively tight range, with EURUSD consolidating around the 1.1550 area as investors await the latest US CPI report for fresh direction. While the single currency continues to draw support from expectations that the European Central Bank will deliver a 25 basis point rate hike at Thursday’s meeting amid persistent inflation concerns, gains have been tempered by a cautious market mood ahead of key event risk from both the ECB and the Federal Reserve outlook. Recent easing in Middle East tensions has helped stabilize risk sentiment and reduce demand for traditional safe havens, although lingering geopolitical uncertainty continues to underpin the US Dollar at times. As a result, the near-term path for the Euro is being driven largely by the balance between a still relatively hawkish ECB, shifting US rate expectations following stronger US economic data, and the outcome of upcoming inflation figures that could reshape the outlook for Fed policy. Markets are widely expecting the ECB to raise rates this week, with attention likely to shift toward President Lagarde’s guidance on whether further tightening remains on the table later this year.

The Pound has been trading largely as a function of broader US Dollar dynamics, with investors balancing geopolitical developments, shifting central bank expectations, and a mixed domestic backdrop. An easing in direct hostilities between Israel and Iran has helped temper safe-haven demand for the Dollar, offering Sterling some support, although lingering uncertainty surrounding Iran’s nuclear program and the Strait of Hormuz continues to underpin defensive positioning in FX markets. At the same time, stronger-than-expected US labor market data and expectations for firmer US inflation have reinforced the view that the Federal Reserve could maintain a hawkish bias for longer, limiting GBPUSD upside. On the UK side, a sharp rebound in May BRC retail sales provided a rare positive surprise for the domestic economy, though markets have been reluctant to extrapolate too much from the data given concerns that April GDP likely contracted and growth momentum remains fragile. The Bank of England also finds itself in a difficult position, with policymakers increasingly acknowledging that higher energy costs could keep inflation elevated even as economic activity softens. While some officials have signaled concern about broadening price pressures, the market expects the BoE to remain on hold at its upcoming meeting, leaving Sterling without a strong domestic policy catalyst. As a result, attention remains firmly fixed on incoming US CPI data and Friday’s UK GDP release, both of which have the potential to reshape expectations for the Fed and the BoE and drive the next meaningful move in the Pound.

The Yen remains under pressure as escalating tensions in the Middle East continue to weigh on Japan’s economic outlook and support safe-haven demand for the US Dollar, keeping USDJPY pinned near the critical 160.50 intervention zone. Although Japan’s latest Producer Price Index surprised to the upside, reinforcing expectations that the Bank of Japan will continue normalizing policy, markets remain unconvinced that additional tightening alone will be sufficient to materially narrow the still-wide US-Japan yield differential. Investors are increasingly treating an expected BoJ rate hike to 1.00% at next week’s meeting as a foregone conclusion, with some economists projecting rates could rise further later this year. However, stronger US data, reduced expectations for Federal Reserve easing, and concerns that higher energy prices stemming from Middle East disruptions will disproportionately hurt energy-importing Japan have continued to undermine the Yen. At the same time, repeated warnings from Japanese officials that they stand ready to act against excessive currency moves, particularly with USDJPY trading back near levels that previously triggered record intervention, are helping to limit more aggressive Yen selling. Attention now turns to upcoming US inflation data, with hotter-than-expected CPI or PPI readings likely to reinforce the higher-for-longer Fed narrative and potentially push USDJPY further into intervention territory, while softer inflation outcomes could offer the Yen a temporary reprieve.

The Australian Dollar remains under pressure following mixed Chinese inflation data that offered little fresh directional impetus. China’s May CPI rose 1.2% annually, slightly below expectations, suggesting domestic demand remains uneven, while stronger-than-expected producer prices pointed to firmer industrial activity and resilience in parts of the manufacturing sector. Given China’s status as Australia’s largest trading partner, these data points remain important for the Aussie through trade and commodity demand channels, although the market reaction has been muted. More broadly, sentiment toward the AUD continues to be shaped by global risk dynamics, with renewed US strikes on Iran boosting safe-haven demand for the US Dollar and tempering hopes for a lasting Middle East peace deal. At the same time, the Australian currency is finding some support from expectations the RBA will maintain a relatively hawkish bias compared with several of its global peers, particularly as policymakers remain alert to persistent domestic inflation pressures. Looking ahead, traders are likely to remain cautious ahead of the latest US inflation data, which could significantly influence Federal Reserve expectations, Treasury yields, and broader risk appetite, all of which remain key drivers for the direction of AUDUSD.

The euro has been trading with a mixed bias, supported by expectations that the ECB will deliver another 25bp rate hike this week after Eurozone inflation accelerated to 3.2%, reinforcing the central bank’s hawkish stance and keeping the prospect of additional tightening on the table. Recent data has also been modestly encouraging, with Eurozone Sentix investor confidence improving in June, suggesting sentiment is becoming less pessimistic despite ongoing growth concerns. At the same time, upside in the single currency has been capped by renewed geopolitical uncertainty in the Middle East, with investors gravitating toward the safe-haven US Dollar after comments from Israeli Prime Minister Netanyahu indicated the conflict with Iran and Hezbollah may not yet be over. Looking ahead, the market’s focus is squarely on Thursday’s ECB decision and President Lagarde’s guidance on the policy outlook, while Wednesday’s US CPI report could also prove pivotal for EURUSD by influencing expectations around the Federal Reserve path and broader US Dollar direction.

The pound is finding solid underlying support on dips, backed by the UK’s one of the highest policy rates in the G7 (tied with the US at 3.75%) and a resilient inflation outlook that keeps the Bank of England from cutting rates aggressively. Despite a stronger-than-expected US jobs report reinforcing expectations of a more restrictive Federal Reserve that could even hike later in 2026, the yield advantage and BoE’s cautious stance continue to provide a firm floor for Sterling. While the BoE remains mindful of weakening growth, elevated energy prices are expected to keep inflation risks tilted higher toward 4%, limiting the scope for rapid easing and reinforcing rate support for the pound. The recent Israel-Lebanon ceasefire has improved risk sentiment and reduced safe-haven flows into the dollar, offering further tailwinds for GBPUSD on dips, even as lingering geopolitical tensions around Iran, the Gulf, and the Strait of Hormuz maintain a cautious backdrop. With traders now looking toward Friday’s UK GDP data for signs of resilience and tomorrow’s US inflation and labor market releases for Fed clues, the overall setup leaves GBPUSD well-supported on weakness while remaining capped by superior US fundamentals, favoring a range-bound to modestly constructive bias.

The yen remains primarily driven by the widening policy divergence between the Bank of Japan and the Federal Reserve, with stronger-than-expected US employment data reinforcing expectations that US rates will remain higher for longer and helping keep USDJPY above the psychologically important 160.00 level. At the same time, the yen continues to draw support from rising expectations for further BoJ policy normalization after stronger Japanese wage growth data reinforced the case for additional tightening later this month. However, the dominant theme remains growing intervention risk, with Japanese Finance Minister Katayama again warning that authorities stand ready to take decisive action against excessive currency weakness, while many market participants increasingly view the 160.00 area as a potential trigger point for official action. A modest easing in Israel-Iran tensions has also reduced safe-haven demand for both the US dollar and yen, leaving interest rate differentials and intervention concerns as the key drivers of price action ahead of this week’s US inflation data, which could significantly influence expectations for the Fed and the next move in USDJPY.

The Australian dollar is finding support from an improving global risk backdrop and encouraging Chinese economic data, with AUDUSD rebounding toward 0.7050 after recent two-month lows. Easing tensions in the Middle East have weighed on the US dollar as oil prices retreat and investors become more willing to embrace risk, providing a tailwind for the Aussie. At the same time, stronger-than-expected Chinese trade figures have reinforced the outlook for Australia’s largest trading partner, with exports and imports both accelerating sharply in May, highlighting resilient demand for commodities, semiconductors and AI-related hardware. Domestically, the broader fundamental picture remains constructive, supported by still-elevated inflation and a Reserve Bank of Australia that continues to signal a cautious, hawkish stance, keeping the prospect of lower rates distant for now. While Australia’s economy has shown some signs of moderation through softer growth and a cooling labor market, inflation remains above target and policymakers continue to emphasize that policy must stay restrictive. As a result, the medium-term outlook for the Aussie remains underpinned by relatively high Australian yields, resilient domestic fundamentals and stabilization in China, although near-term direction continues to depend heavily on global risk sentiment, US dollar dynamics and geopolitical developments.

The euro has come under pressure in recent sessions, with EURUSD retreating as a stronger-than-expected US labor market report prompted markets to scale back expectations for Federal Reserve easing and pushed US Treasury yields sharply higher. While Eurozone inflation remains elevated, with headline CPI accelerating to 3.2% in May and underlying price pressures showing signs of broadening, the ECB’s latest rate hike was fully priced and President Lagarde offered little indication of an accelerated tightening path beyond current expectations. At the same time, softer Eurozone growth signals have resurfaced, highlighted by a larger-than-expected 3.8% decline in German factory orders in April, reinforcing concerns over manufacturing momentum in the bloc’s largest economy. More broadly, the euro continues to benefit from improving investor sentiment toward Europe, expectations for increased fiscal spending and defense investment across the region, and a narrowing growth differential versus the US. However, near-term price action remains largely driven by shifts in Fed pricing, US yield dynamics, and broader risk sentiment, with geopolitical tensions in the Middle East adding an additional layer of uncertainty for global markets ahead of this week’s US CPI release and further ECB guidance.

The Japanese Yen remains under pressure, with USDJPY pushing back above the psychologically important 160.00 level, driven primarily by widening US-Japan rate differentials and a resurgence in US Dollar demand. Stronger-than-expected US labor market data, including a solid May nonfarm payrolls report and upward revisions to prior months, have reinforced expectations that the Federal Reserve will keep policy restrictive for longer, supporting higher US Treasury yields. At the same time, rising oil prices amid escalating Israel-Iran tensions have added another headwind for Japan, a major energy importer, worsening the country’s terms of trade and weighing on the Yen. On the domestic side, Japan’s Q1 GDP growth was revised modestly lower, highlighting some loss of economic momentum, although the data has done little to alter expectations for further Bank of Japan normalization. Indeed, stronger wage growth and persistent inflation pressures continue to support expectations for additional BoJ tightening in the months ahead. Nevertheless, for now, external factors remain dominant, with markets focused on the yield advantage of the Dollar and the risk that any sustained move above 160.00 could provoke another round of official intervention, particularly as Japanese authorities have stepped up warnings against excessive currency volatility.

The Australian Dollar has entered a more consolidative phase after its strong rally earlier in the year, with gains increasingly capped by a resilient US Dollar and shifting global risk sentiment. On the domestic front, the currency continues to draw support from the Reserve Bank of Australia’s relatively hawkish stance, as policymakers maintain that inflation remains too elevated and signal that rates are likely to stay restrictive for longer. While recent Australian growth and labor market data have softened at the margin, inflation remains sticky enough to keep markets cautious about pricing in RBA easing. Externally, China – Australia’s largest trading partner – has stabilized rather than accelerated, providing a neutral backdrop for the Aussie through steady, though unspectacular, demand prospects. More recently, however, AUD performance has been dominated by broader macro drivers, including renewed Middle East tensions, which have boosted safe-haven demand for the US Dollar, alongside stronger-than-expected US economic data that has reinforced expectations for a higher-for-longer Federal Reserve policy stance. As a result, the Aussie remains supported by relatively constructive domestic fundamentals and RBA policy expectations, but its upside continues to be constrained by USD strength, geopolitical uncertainty, and the absence of a stronger growth impulse from China.

The euro has remained well supported on the fundamentals, with recent Eurozone inflation data reinforcing expectations that the ECB will continue its gradual normalization path. Headline CPI accelerated to 3.2% in May, its highest level in more than two-and-a-half years, while core inflation rose to 2.5% and services inflation climbed to 3.5%, highlighting increasingly broad-based price pressures across the economy. The data has effectively cemented market expectations for another 25bp ECB rate hike next week, helping underpin demand for the single currency despite ongoing geopolitical uncertainty. At the same time, Eurozone growth dynamics have shown signs of stabilization, reducing concerns about an aggressive easing cycle and supporting a widening divergence with expectations for slower US economic momentum. Nevertheless, EURUSD has struggled to extend gains beyond the mid-1.16s as the dollar remains supported by safe-haven demand amid heightened Middle East tensions and ahead of key US labor market data, with investors looking to the latest Nonfarm Payrolls report for clues on the Federal Reserve’s policy outlook.

The Yen remains under pressure, with USDJPY hovering near the closely watched 160.00 level as widening US-Japan yield differentials continue to outweigh improving domestic fundamentals. While stronger-than-expected wage growth has reinforced expectations that the Bank of Japan will continue normalizing policy, and markets remain alert to the risk of official intervention should Yen weakness become disorderly, these supportive factors have so far failed to generate a sustained recovery. Instead, the Dollar has remained underpinned by resilient US economic data and expectations that the Federal Reserve will keep rates restrictive for longer, preserving the yield advantage in favor of the USD. At the same time, heightened geopolitical uncertainty in the Middle East has boosted demand for Dollar liquidity, further limiting Yen gains despite its traditional safe-haven status. As a result, the market continues to test Japan’s tolerance for currency weakness, with intervention rhetoric from Tokyo helping to slow, but not reverse, the broader trend of Yen depreciation.

The Australian Dollar remains broadly supported by a still-resilient domestic economy and the Reserve Bank of Australia’s increasingly “higher-for-longer” policy stance, although gains have recently stalled near the 0.7200 area. While headline inflation has continued to ease, underlying price pressures remain sticky, with trimmed mean inflation still running above the RBA’s target range, reinforcing Governor Bullock’s message that policymakers will do whatever is necessary to restore price stability. Markets continue to price a prolonged period of restrictive policy, with the cash rate held at 4.35% and expectations for additional tightening still lingering. Domestic growth has softened from earlier levels and labor market conditions are gradually cooling, but activity remains comparatively robust relative to many G10 peers. External factors have also become increasingly important for the Aussie, with swings in global risk sentiment and developments in the Middle East driving near-term price action. Recent optimism around a potential easing of tensions between the US and Iran weighed on the US Dollar and supported risk-sensitive currencies, though renewed uncertainty surrounding negotiations has helped underpin safe-haven demand for the Greenback. Meanwhile, China remains more of a stabilizing influence than a growth engine for Australia, with improving business surveys helping offset softer activity data and ongoing concerns around domestic demand. Overall, the fundamental backdrop remains constructive for the Australian Dollar, supported by a hawkish RBA, relatively firm domestic conditions, and investor positioning that continues to favor the currency, although further upside will likely require either a renewed improvement in global risk appetite or another leg lower in the US Dollar.

The euro has remained broadly supported on the back of a steadily more hawkish ECB outlook, with markets increasingly convinced the central bank will deliver a 25bp rate hike at next week’s meeting and potentially follow up with additional tightening later this year as inflation pressures remain elevated. Recent data showed Eurozone CPI accelerating to 3.2% in May, with core inflation also firming, reinforcing concerns that higher energy costs linked to Middle East tensions are feeding into broader price pressures. At the same time, ECB officials have continued to signal a willingness to act to prevent inflation expectations from becoming entrenched, helping underpin Euro demand despite signs of slowing regional growth and softer business activity data. More recently, easing geopolitical tensions following a reported Israel-Lebanon ceasefire have weighed on safe-haven demand for the US dollar, allowing EURUSD to be supported into dips. That said, upside in the single currency remains tempered by lingering uncertainty surrounding the broader Middle East conflict, elevated oil prices, and expectations that the Federal Reserve could maintain a relatively hawkish policy stance if US inflation risks persist.

The yen remains under pressure as the fundamental backdrop continues to favor capital outflows and a wide yield advantage for the US dollar. While Japanese officials have stepped up verbal intervention, with Prime Minister Takaichi, Finance Minister Katayama, and other policymakers reiterating their readiness to act against excessive and speculative FX moves, markets remain focused on the underlying drivers of yen weakness. Despite the Bank of Japan’s gradual normalization efforts and rising JGB yields, Japanese rates remain well below US Treasury yields, preserving the attractiveness of dollar assets and carry trades. At the same time, Japan’s status as a major energy importer leaves the economy vulnerable to elevated oil prices and geopolitical tensions, which can worsen the trade balance and weigh on the currency. Investors also remain unconvinced that the BoJ will tighten policy aggressively enough to materially narrow rate differentials, with government officials continuing to stress that specific policy measures remain the central bank’s decision. As a result, while intervention threats may slow the pace of USDJPY gains around the closely watched 160 level, markets continue to see sustained yen strength as unlikely absent a more pronounced slowdown in the US economy, a sharper narrowing in US-Japan yield spreads, or a significantly more hawkish shift from the BoJ.

The Australian Dollar has been underpinned by a combination of resilient domestic fundamentals and a still-hawkish Reserve Bank of Australia, with AUD finding support after April trade data showed a stronger-than-expected return to surplus as exports surged 7.2% month-on-month, driven by solid shipments of iron ore, coal and LPG, while import growth slowed sharply. The data reinforced the view that external demand remains supportive despite a moderation in domestic activity. On the monetary policy front, RBA Governor Bullock reiterated that inflation remains too high and is expected to rise further in the near term, maintaining a tightening bias even as the central bank paused after three consecutive rate hikes. While recent GDP figures and easing unit labor cost growth have strengthened expectations that the RBA may remain on hold for now, markets continue to price a meaningful chance of another hike later this year should inflation prove sticky. More broadly, the AUD has also benefited from an improvement in global risk sentiment and ongoing US dollar softness, though gains have been tempered by concerns over slowing Australian household demand, a cooling housing market, and rising geopolitical tensions in the Middle East, which have boosted safe-haven demand for the US dollar and increased uncertainty around the global growth outlook.

The euro has remained relatively well supported on the fundamentals, underpinned by a renewed hawkish shift in ECB expectations after Eurozone inflation surprised to the upside in May, with headline HICP accelerating to 3.2% year-over-year. Recent comments from ECB officials have reinforced the view that policymakers remain concerned about inflation risks, particularly against the backdrop of higher energy prices stemming from escalating Middle East tensions and the closure of the Strait of Hormuz. ECB Governing Council members Olli Rehn, Gediminas Simkus and Pierre Wunsch have all signaled support for a June rate hike, with Wunsch noting that the case for tightening remains compelling if geopolitical tensions persist and warning against relying solely on market pricing to do the ECB’s work. At the same time, the euro’s gains have been tempered by a broader risk-off environment that has boosted demand for the US dollar as a safe haven. Stronger-than-expected US data, including a rise in ISM manufacturing activity to its highest level since 2022 and a sharp increase in job openings, has reinforced the narrative of higher-for-longer Fed policy, limiting EURUSD upside despite increasingly hawkish ECB rhetoric. Overall, markets continue to balance a more restrictive ECB outlook against the support being generated for the dollar from geopolitical uncertainty and resilient US economic performance.

The yen remains under broad pressure, with USDJPY once again testing the key 160 area as the wide US-Japan rate differential continues to favor the dollar, particularly against a backdrop of resilient US data and expectations that the Federal Reserve will keep policy restrictive for longer. At the same time, the Bank of Japan has been slow to normalize policy despite underlying inflation remaining above target and growing speculation that it could deliver another rate hike this month. Rising Middle East tensions and elevated oil prices have added another headwind for the yen, given Japan’s heavy reliance on imported energy, worsening the terms-of-trade impact and increasing demand for dollars. While safe-haven flows would normally support the yen, geopolitical uncertainty has instead reinforced demand for the US dollar as the world’s primary reserve currency. Against this backdrop, markets are increasingly focused on the risk of official intervention, with Japanese authorities reiterating their readiness to act against excessive or speculative currency moves after spending a record ¥11.7 trillion supporting the yen in late April and May. However, the limited and short-lived impact of previous intervention efforts suggests that without a more meaningful narrowing of yield differentials through further BOJ tightening, underlying yen weakness is likely to persist.

The Australian Dollar has come under renewed pressure after Q1 GDP growth slowed to just 0.3% q/q, undershooting expectations and reinforcing the view that the Australian economy is losing momentum amid elevated borrowing costs and softer domestic demand. The weaker growth backdrop has prompted markets to scale back expectations for additional RBA tightening, particularly against a backdrop of a cooling labor market and contracting services activity. At the same time, escalating Middle East tensions have boosted safe-haven demand for the US Dollar while raising concerns about the growth implications of persistently high energy prices for Australia. Offsetting some of these headwinds, China’s latest data have offered a constructive signal for Australia’s external outlook, with the May Caixin Services PMI jumping to 54.4 from 52.6, marking the fastest expansion in three months and highlighting resilient domestic demand and improving employment conditions. The strong Chinese services reading reinforces expectations that Beijing’s policy support measures are helping cushion the economy from global shocks, providing a degree of support for Australia’s commodity and export sectors. However, for now, the market appears more focused on weakening domestic Australian growth dynamics and reduced RBA rate expectations, leaving the AUD vulnerable despite the relatively encouraging China backdrop.

The euro has remained well-supported above 1.16, driven primarily by a more hawkish shift in ECB expectations as policymakers grow increasingly concerned that the inflationary impact of elevated energy prices linked to Middle East tensions is broadening beyond the energy sector. ECB Executive Board member Isabel Schnabel has argued that the central bank can no longer look through the inflation shock, warning of rising risks of second-round effects and unanchored inflation expectations, prompting markets to price in additional rate hikes this year. Attention is now firmly on the latest Eurozone HICP release, with headline inflation expected to accelerate further after rising to 3.0% in April, reinforcing the view that price pressures remain well above the ECB’s 2% target. Recent national inflation readings from major economies including Spain and France have also surprised on the upside, adding to expectations that the ECB will maintain a tightening bias. At the same time, ongoing geopolitical uncertainty surrounding the Israel-Iran conflict, risks to global energy supply routes, and developments around the Strait of Hormuz continue to fuel concerns over persistent inflation pressures, helping underpin the euro even as broader risk sentiment remains fragile.

The yen remains under pressure as markets continue to focus on the wide policy divergence between the Federal Reserve and Bank of Japan, with USDJPY pushing back toward the 160 level despite growing expectations for a BoJ rate hike at the June 15-16 meeting. While BoJ Governor Ueda has maintained a hawkish tone, warning about second-round inflation effects from higher energy prices, and market participants increasingly expect another rate increase alongside further policy normalization, these supportive factors for the yen have been offset by rising concerns over Japan’s vulnerability to elevated oil prices amid ongoing Middle East tensions. Higher energy costs are seen as a drag on Japan’s import-dependent economy even as they boost inflation. At the same time, resilient US economic data and persistent inflation concerns have reinforced expectations that US rates will remain higher for longer, sustaining favorable yield differentials for the dollar. Japanese authorities have also stepped up verbal intervention, with Finance Minister Katayama stressing close monitoring of markets and coordination with US counterparts, helping to curb speculative yen selling as traders remain wary of potential intervention should USDJPY extend gains beyond current levels. Meanwhile, rising Japanese government bond yields, with 10-year JGB yields at multi-decade highs, have fueled debate over the pace of BoJ normalization, with major financial institutions arguing that a clear roadmap for future tightening will be just as important as the June rate decision in restoring confidence in the yen.

The Australian Dollar has come under modest pressure in recent sessions as investors reassess the domestic growth outlook ahead of Wednesday’s Q1 GDP release. A weaker-than-expected current account report, which showed the deficit widening to A$27.1 billion, alongside softer company profit data, reinforced concerns that growth momentum is slowing, with net exports now expected to subtract around 0.8 percentage points from quarterly GDP and government spending contributing little support. At the same time, signs of cooling domestic demand, including softer household consumption, a gradually weakening labor market and flat housing prices, suggest the Reserve Bank of Australia’s earlier tightening is beginning to bite. However, AUD downside remains tempered by the RBA’s still-hawkish policy stance, with sticky underlying inflation, rising wage pressures following Australia’s 4.75% minimum wage increase, and expectations from some banks for a further 25bp rate hike in August helping to support yield differentials. More broadly, the currency continues to take direction from global risk sentiment, developments in the Middle East and China’s economic performance, with China acting more as a stabilizing influence than a major growth tailwind for Australia. Overall, while softer near-term growth expectations have weighed on the AUD, the prospect of higher-for-longer Australian interest rates continues to provide an important fundamental offset.