The euro is trying to recover after the latest dip, supported by increasingly hawkish ECB expectations as officials emphasize upside inflation risks from energy prices and resilient growth. Recent comments from Isabel Schnabel have reinforced expectations for a September rate hike and the possibility of further tightening in the coming quarters, although lingering concerns about the Eurozone growth outlook continue to limit demand for the currency. Attention now turns to preliminary German inflation data, with both headline CPI and harmonized inflation expected to accelerate in August. A stronger reading would reinforce the case for ECB tightening and could provide the euro with additional support. At the same time, gains have been restrained by Fed Chair Kevin Warsh’s warning that policymakers still have work to do if underlying inflation does not move convincingly toward target, which has pushed up expectations for a September Fed hike and kept the broader rate differential supportive of the dollar.

The pound has started the week on a firmer footing, recovering some of Friday’s heavy losses as the US dollar eases from a nearly two-week high following month-end demand. Sterling has also drawn modest support from the UK government’s renewed emphasis on fiscal discipline ahead of the October Budget, though upside remains limited by the widening policy-rate outlook between the Bank of England and Federal Reserve. Markets have pushed expectations for the next BoE rate increase into 2027, while Fed Chair Kevin Warsh’s hawkish comments have revived the possibility of a September hike. Renewed US-Iran tensions are providing an additional layer of support for the safe-haven dollar, leaving the pound vulnerable as attention shifts to this week’s US data, culminating in Friday’s employment report.

The yen remains under pressure near a one-month low against the dollar, with USDJPY hovering around the 160.00 level as the wide US-Japan interest-rate gap continues to encourage carry-trade demand. The Bank of Japan raised rates to 1.00% in June and markets see a strong chance of another increase in September, but this has been outweighed by expectations that the Federal Reserve could also tighten policy following Chair Kevin Warsh’s hawkish Jackson Hole remarks. Concerns surrounding Japan’s deteriorating public finances and expansionary fiscal policy have added to the yen’s weakness, while comments from US Treasury Secretary Scott Bessent describing the recent move as contained have reduced expectations for coordinated intervention. Renewed US-Iran hostilities have also favored the dollar as the market’s preferred safe haven, although the proximity of USDJPY to 160.00 should keep the threat of unilateral Japanese intervention firmly in focus.

The Australian dollar remains supported by a relatively hawkish domestic policy outlook, after strong inflation data reinforced expectations that the Reserve Bank of Australia may need to raise rates again. The currency has also benefited from softer US Treasury yields and a modest pullback in the US dollar, although its upside has been constrained by renewed expectations for a September Federal Reserve rate hike and escalating US-Iran tensions, which have encouraged safe-haven demand for the greenback. More broadly, the Aussie remains sensitive to shifts in global risk appetite and the outlook for China, leaving the contrast between increasingly hawkish RBA expectations and continued US dollar support as the key near-term driver.

The euro has come under renewed pressure against the US dollar, with EURUSD slipping as markets brace for Fed Chair Warsh’s Jackson Hole address. The dollar has regained support from sticky US inflation and increasingly hawkish remarks from Fed officials, reinforcing the possibility that US monetary policy may need to remain restrictive or tighten further. The euro’s downside has nevertheless been cushioned by expectations that the ECB could deliver another rate increase as elevated energy costs threaten renewed inflation pressure. For now, however, the pair remains primarily driven by the US side of the equation, with Warsh’s assessment of inflation and the policy outlook likely to determine whether the dollar’s recovery extends.

The pound has steadied after retreating from a six-month high, with the recent pullback driven largely by a scaling back of Bank of England tightening expectations. Lower oil prices have eased concerns that the recent inflation pickup will require an immediate policy response, and markets no longer fully price a 25-basis-point BoE rate hike until early 2027. Sterling nevertheless remains relatively well supported by still-elevated UK inflation, attractive gilt yields and a reasonably resilient domestic economy, although signs of softness in the labor market argue against near-term tightening. With little major UK data currently driving trade, the pound’s immediate direction is being dictated primarily by the US dollar and expectations surrounding Fed Chair Warsh’s Jackson Hole address, where any hawkish signal could place renewed pressure on GBPUSD.

The yen has strengthened modestly after hotter Tokyo inflation reinforced expectations that the Bank of Japan could raise rates as early as September. Headline, core and underlying inflation measures all accelerated in August, with the data strengthening the case for further policy normalization. BoJ Deputy Governor Himino also emphasized the need to pay greater attention to upside inflation risks, although the yen initially struggled after he stopped short of explicitly signaling an imminent hike. The currency’s gains remain constrained by Japan’s still-wide yield disadvantage against the US, leaving USDJPY highly sensitive to Fed Chair Warsh’s Jackson Hole speech and any fresh guidance on the US interest-rate outlook.

The Australian dollar remains well supported, with hotter-than-expected July inflation sharply increasing expectations that the Reserve Bank of Australia will need to raise rates again. Markets are now fully pricing a hike by November and assign a meaningful chance of an earlier move in September, while several major Australian banks have brought forward their tightening forecasts. The resulting yield support, alongside a broader preference for higher-yielding currencies, has helped AUDUSD extend its advance through 0.7200, although the next directional catalyst will likely come from Fed Chair Warsh’s Jackson Hole speech and its implications for US interest rates, Treasury yields and the US dollar.

The euro remains well supported by increasingly hawkish ECB expectations, with markets pricing a strong chance of another rate increase in September and further tightening by year-end. ECB officials, including Schnabel, have highlighted upside inflation risks from the prolonged Middle East conflict and the surprising resilience of the eurozone economy, reinforcing the view that borrowing costs may need to rise further. This policy backdrop has helped EURUSD hold up, although gains have been kept in check by consolidation following the recent rally and uncertainty surrounding the US rate outlook. Attention now shifts to Fed Chair Warsh’s Jackson Hole speech, particularly after US inflation data offered little clarity, with core PCE matching expectations but headline inflation coming in slightly hotter.

Sterling remains well supported near six-month highs, underpinned by resilient UK data, elevated gilt yields and lingering Bank of England tightening risk after July inflation rose to 2.9% and three MPC members voted for a rate hike. However, the pound’s broader August advance has also owed heavily to US dollar weakness, leaving it vulnerable when US data or Fed expectations support the greenback, as seen following Wednesday’s slightly firmer headline PCE reading. With no major UK releases left this week, domestic policy expectations are unlikely to shift meaningfully, while concerns over high borrowing costs and limited fiscal headroom remain a background restraint. Near-term direction should therefore be driven primarily by the dollar and Fed Chair Warsh’s Jackson Hole address on Friday, with markets looking for clarity on how the Fed will respond to still-elevated inflation.

Yen declines have stalled out as optimism around a potential US-Iran ceasefire and the reopening of commercial shipping routes through the Strait of Hormuz has eased geopolitical concerns and restrained the dollar. Still, yen gains remain limited by Japan’s deteriorating fiscal outlook and the wide US-Japan interest-rate differential, particularly as sticky US inflation keeps the possibility of further Fed tightening alive. Markets are now looking to Friday’s Tokyo CPI report for clues on the pace of future Bank of Japan rate hikes, while Fed Chair Warsh’s Jackson Hole speech will be critical in shaping the US rate outlook and the next move in USDJPY.

The Australian dollar remains well supported by a sharp repricing of RBA policy expectations after hotter-than-expected July inflation reinforced concerns that price pressures are proving persistent. Major Australian banks now expect the cash rate to rise to 4.60%. The currency has largely shrugged off a steep decline in second-quarter private capital expenditure, with broader indicators continuing to suggest an economy that is soft rather than seriously weak. Still, the upside has been limited by a firm US dollar following slightly hotter headline PCE inflation, while traders await further policy direction from Fed Chair Warsh at Jackson Hole.

The euro has been underpinned by increasingly hawkish ECB expectations, with Isabel Schnabel warning that inflation is likely to remain above the 2% target for an extended period and stressing the need to prevent energy-driven price pressures from generating second-round effects. Her comments reinforce expectations that the ECB will raise rates again in September, particularly as the eurozone economy continues to show resilience despite elevated energy costs. Nevertheless, the single currency has struggled to extend its gains, with EURUSD slipping as the dollar firms ahead of today’s US PCE inflation report. The near-term direction will therefore depend heavily on whether the US data strengthens expectations for further Fed tightening, while falling German and US bond yields and uncertainty over how far the ECB will tighten beyond September are also limiting conviction.

Sterling remains close to a six-month high against the dollar, supported by a combination of resilient UK activity, sticky inflation and growing expectations that the Bank of England could raise rates again before year-end. Recent PMI and confidence data have pointed to improving economic momentum, while July inflation accelerated to 2.9% and the latest Citi/YouGov survey showed a renewed rise in public inflation expectations, reinforcing the market’s relatively hawkish BoE pricing. GBPUSD has nevertheless edged back below the mid-1.3600s as traders reduce exposure ahead of the US PCE report and Fed Chair Warsh’s Jackson Hole address. Softer US yields, reduced expectations of further Fed tightening and hopes for Iran diplomacy continue to limit the dollar’s recovery, although elevated gilt yields and uncertainty surrounding the UK’s October budget remain important domestic constraints on further sterling gains.

The yen remains caught between increasingly supportive domestic inflation signals and the still-wide US-Japan interest-rate differential. Economy Minister Minoru Kiuchi said consumer prices should continue to rise gradually because of the Middle East situation, while Japanese corporate-services inflation accelerated to 3.6% year-on-year in July, reinforcing expectations that the Bank of Japan could raise rates again as soon as September. Higher Japanese yields and the continuing threat of official intervention are helping to limit further yen weakness, but elevated US yields, concerns over Japan’s fiscal outlook and doubts that modest BoJ tightening will rapidly close the rate gap continue to constrain any sustained recovery. Easing Middle East tensions and lower oil prices offer some relief for energy-importing Japan, leaving the yen’s near-term direction particularly sensitive to US inflation data and the resulting shift in Fed expectations.

The Australian dollar has outperformed after hotter-than-expected July inflation reinforced expectations that the RBA may need to tighten policy again. Headline CPI rose 1.0% on the month and 3.5% year-on-year, while the more policy-relevant trimmed mean held at an elevated 3.6%, highlighting persistent underlying price pressures despite the moderation in annual headline inflation from 3.8%. This strengthens the message from the RBA’s latest meeting, where policymakers kept the cash rate at 4.35% but explicitly retained the option of another increase if upside inflation risks materialize, including those stemming from energy prices, resilient demand and domestic capacity pressures. The resulting hawkish repricing has lifted Australian yields and supported the AUD, particularly against the softer New Zealand dollar, although the next move against the US dollar will also depend heavily on the upcoming US PCE inflation report and its implications for Fed policy.

The euro remains supported by increasingly hawkish ECB expectations, with elevated oil and gas prices, rising bond yields and persistent Middle East tensions reinforcing concerns that the energy shock will keep Eurozone inflation above target. Markets are leaning toward another 25-basis-point rate hike in September after the ECB raised rates in June and held steady in July, although the Governing Council continues to stress that policy will depend on incoming data and the persistence of price pressures. The single currency has also benefited from a broadly subdued US Dollar following the Treasury’s expansion of long-dated bond buybacks, while improving German investor sentiment has offered some reassurance over the regional growth outlook. Attention now turns to German Ifo business sentiment, US consumer confidence and PCE inflation, followed by Fed Chair Warsh’s Jackson Hole speech, with relative ECB-Fed rate expectations likely to remain the principal driver of EURUSD.

The pound remains one of the stronger G7 currencies, with GBPUSD holding near five-month highs after gaining roughly four cents from its early-August low. The advance has been driven primarily by broad US dollar weakness following the Treasury’s expanded long-dated bond buybacks, but sterling has also benefited from expectations that persistent UK inflation, resilient business activity and elevated gilt yields will keep the Bank of England restrictive, with markets pricing another rate increase by year-end. July inflation accelerated to 2.9%, while the UK ten-year yield remains above 5%, reinforcing sterling’s interest-rate appeal even as weaker employment data point to an increasingly uncomfortable mix of inflation and slowing labor demand. With little UK data scheduled this week, near-term direction should be dictated mainly by US core PCE, Jackson Hole and the Fed Chair’s speech, although concerns surrounding Britain’s fiscal position and the October Budget remain an important medium-term constraint on the pound.

The yen remains under pressure against the US dollar, with the wide US-Japan interest-rate differential continuing to support carry trades, while concerns over Japan’s heavy debt burden, expansionary fiscal policy and rising long-term borrowing costs have further undermined confidence in the currency. The rebound generated by the large joint US-Japan intervention in late July has largely faded, highlighting the difficulty of achieving a lasting reversal without a meaningful narrowing in rate differentials. Elevated oil prices are another headwind for energy-import-dependent Japan, although expectations that the Bank of Japan could raise rates again in September or October, together with the threat of renewed intervention, are limiting more aggressive yen selling. On the US side, elevated Treasury yields and geopolitical tensions remain broadly supportive of the dollar, but concerns over US fiscal sustainability and reduced expectations for an immediate Fed rate hike have kept USDJPY from extending decisively higher, leaving upcoming US PCE inflation data and Fed Chair Warsh’s Jackson Hole speech as the next major catalysts.

The Australian dollar remains well supported near recent highs after the RBA’s August meeting minutes revealed a live debate over another rate increase. While the Board unanimously held the cash rate at 4.35%, several members saw a case for pre-emptive tightening amid upside inflation risks from elevated oil prices, weak productivity and the AI-driven data-center investment boom, although softer employment, housing and inflation indicators gave policymakers scope to wait for more data. The Aussie is also benefiting from a broadly subdued US dollar as the Treasury’s expanded long-dated bond-buyback plans and uncertainty surrounding tougher secondary sanctions on Iran weigh on US sentiment. Near-term direction will now depend heavily on US PCE inflation and Fed Chair Warsh’s Jackson Hole address, with any hawkish Fed signal presenting the main risk to the currency’s recent strength.

The euro remains well supported near three-month highs against the dollar, though the latest advance has been driven more by broad US currency weakness than by a marked improvement in euro-area fundamentals. Investor concern over the US fiscal outlook and the Treasury’s decision to expand long-dated bond buybacks has weighed on the greenback, while the ECB’s decision to keep rates unchanged and elevated euro-area inflation have preserved expectations that policy will remain restrictive. The euro-area growth backdrop is still subdued, however, with soft domestic demand, slowing job creation and lingering uncertainty from higher energy prices limiting the case for sustained euro strength. Near-term direction should therefore hinge heavily on US developments, particularly Fed Chair Warsh’s Jackson Hole speech, upcoming inflation data and details of new sanctions on Iran, with a hawkish Fed message or renewed geopolitical demand for the dollar posing the clearest downside risks to EURUSD.

The pound remains well supported near six-month highs against the dollar, although the advance continues to reflect broad USD weakness more than a decisive improvement in UK fundamentals. The greenback has been pressured by reduced expectations for an imminent Fed rate hike, falling Treasury yields and concerns that expanded US debt buybacks amount to indirect yield suppression. Domestically, sterling is benefiting from the UK economy’s relative resilience and July inflation rising to 2.9%, which has kept one Bank of England rate increase priced by year-end. However, softer wage growth, a cooling labor market and a 0.5% fall in July retail sales argue against an aggressive BoE tightening cycle. This leaves the pound’s outlook constructive but vulnerable if rising oil prices intensify global risk aversion, support the safe-haven dollar or further squeeze UK household spending.

The yen has strengthened modestly, as firmer Japanese inflation reinforced expectations that the Bank of Japan could raise rates again in September. July core CPI accelerated to 1.8% year-on-year from 1.6%, while the measure excluding fresh food and energy rose to 1.9%, suggesting that underlying price pressures are broadening and supporting Governor Ueda’s push toward further policy normalization. Markets are now assigning a high probability to a 25-basis-point increase to 1.25% at the September meeting. The yen has also benefited from a softer US dollar and lower Treasury yields after the US Treasury unexpectedly doubled planned long-dated bond buybacks, although still-elevated US yields and renewed Middle East tensions are limiting the scale of the move.

The Australian Dollar has pushed higher, although the move has been driven primarily by broad US Dollar weakness after the Treasury’s expanded long-dated bond-buyback plans raised concerns about intervention in the bond market and the credibility of US fiscal policy. Domestically, the backdrop is less supportive: Australian employment unexpectedly fell by 15,800 in July, unemployment rose to 4.5%, and hours worked declined, cooling expectations for another near-term RBA rate hike even as inflation remains above target. The RBA has kept rates at 4.35% after delivering 75 basis points of tightening this year, leaving the Aussie sensitive to Tuesday’s meeting minutes and Thursday’s July CPI report for guidance on whether further tightening remains likely. Escalating US-Iran tensions could meanwhile limit AUD gains by encouraging safe-haven demand and weakening broader risk appetite.

The euro remains well supported near multi-month highs against the dollar, driven by broad USD weakness and growing expectations that the ECB may need to tighten policy further. Euro-area inflation rose to 2.9% in July, with energy prices increasing 10.3% year-on-year, reinforcing concerns that elevated oil and gas costs could keep price pressures above the ECB’s target and prompting markets to price a more hawkish policy path. The currency has also benefited from a modest improvement in the regional economy, including 0.4% second-quarter growth, although weak retail activity and renewed energy-supply risks remain headwinds. EURUSD’s advance has stalled around 1.1700 as hawkish Fed minutes, elevated US yields and geopolitical tensions provide the dollar with some support, leaving the upcoming Eurozone and US flash PMIs as the next important test of the relative growth and rate outlooks.

The pound remains well supported near six-month highs against the US dollar. Sterling’s advance has been driven primarily by broad dollar weakness following the US Treasury’s expansion of long-dated bond buybacks, which has raised concerns about US fiscal credibility and pushed investors away from the greenback. Domestically, persistent UK inflation has reinforced expectations that the Bank of England may need to raise rates again, providing an additional tailwind for sterling despite signs of cooling employment and wage growth. July retail sales fell 0.5% month-on-month, while the annual increase of 1.6% undershot expectations, but the figures were not weak enough to materially alter the BoE outlook. Larger-than-expected public borrowing also highlighted ongoing fiscal concerns, leaving the pound’s strength largely dependent on favorable rate expectations and continued pressure on the dollar.

The yen has been trading in a narrow range against the dollar, supported by expectations that the Bank of Japan will continue gradually tightening policy but restrained by Japan’s still-wide interest-rate disadvantage and rising import costs. Japan’s core national CPI accelerated to 1.8% year-over-year in July from 1.6%, matching expectations and reinforcing the case for further BoJ normalization, although inflation remains below the central bank’s 2% target. At the same time, Japan’s widening trade deficit and elevated energy costs have limited the currency’s recovery. On the US side, Treasury plans to expand long-dated bond buybacks have lowered yields and weakened the dollar, easing pressure on the yen and pulling USDJPY slightly away from the psychologically important 160 level.

The Australian dollar has regained ground above 0.7100, but the advance has been driven primarily by broad US-dollar weakness rather than improving domestic fundamentals. Concerns about the US fiscal outlook and skepticism that the Treasury’s expanded long-dated bond-buyback program will provide more than temporary relief have weighed on the greenback and supported AUDUSD. However, the Aussie’s upside has been tempered by a clear softening in Australia’s labor market: employment unexpectedly fell by 15,800 in July, while unemployment rose from 4.4% to 4.5%, strengthening the argument for the RBA to pause rather than raise rates again in September. The RBA still considers the labor market somewhat tight and remains alert to persistent inflation, but the latest employment figures have reduced the urgency for further tightening, leaving the currency caught between supportive external US-dollar dynamics and a less favorable domestic rate outlook.

The euro has seen some profit-taking after its sharp advance rather than a material deterioration in the single currency’s fundamentals. The July Fed minutes revealed increased concern over persistent inflation and showed that many officials believe higher rates may be required if price pressures fail to ease, providing the dollar with some near-term support. However, softer US inflation and employment data have reduced expectations for an imminent Fed move, limiting the euro’s downside. Meanwhile, the prospect of further ECB tightening remains a key source of support, with markets assigning a high probability to a 25-basis-point September hike and pricing roughly 45 basis points of additional tightening this year. Eurozone inflation rose to 2.9% in July, elevated energy prices threaten further pressure, and a somewhat firmer regional growth outlook is reinforcing the upward repricing in European rates, leaving the relative policy backdrop broadly supportive for the euro despite its latest pullback.

The pound’s downside remains limited on account of a broad based US Dollar selloff and after UK headline inflation accelerated from 2.6% to 2.9% in July, slightly above the Bank of England’s forecast, reinforcing market expectations for at least one rate hike before year-end. The details however, were less decisively hawkish, with core inflation steady, services inflation easing and wage growth slowing, while weaker UK employment figures have also highlighted risks to the economic outlook. But ultimately, the pound remains well supported by a relatively firm BoE rate path, with further gains dependent on whether incoming data validates market pricing that remains more hawkish than the consensus among economists.

The yen remains under pressure as Japan’s trade deficit widened to ¥634.5 billion in July, with a sharp rise in imports outpacing record exports and reinforcing concerns over the economic impact of elevated energy and other imported costs. Wide US-Japan interest-rate differentials continue to favor USDJPY, while fiscal concerns have added to the yen’s vulnerability. The dollar has also found some support from hawkish-leaning Fed minutes, although softer US inflation pressures and reduced expectations for a near-term Fed rate hike have limited the upside. Looking ahead, the yen’s prospects may depend heavily on whether energy prices retreat, the Bank of Japan maintains a credible path toward further tightening, or Japanese authorities intervene again as USDJPY trades near levels that could increase official concern.

The Australian dollar’s latest run of gains has been capped after a disappointing domestic labor report raised concerns about the economy and reduced the likelihood of near-term Reserve Bank of Australia tightening. Australia’s unemployment rate unexpectedly rose to 4.5% in July, while employment fell by 15,800 following June’s sharp 80,200 increase, falling well short of expectations for a 15,000 gain. Markets are consequently pricing only a modest chance of further RBA tightening, while weaker Chinese demand for Australian commodities and broader concerns over China’s economy remain additional headwinds for the currency. Nevertheless, the downside in AUDUSD has been partly contained by a softer US dollar, as cooling US inflation pressures have reduced expectations for an imminent Federal Reserve rate increase, despite the latest Fed minutes showing officials remain prepared to tighten if inflation fails to ease.

The euro remains firm near a two-month high, supported primarily by a more favorable shift in relative rate expectations. Softer US inflation, weak July employment and disappointing retail sales have reduced expectations for another Federal Reserve increase, while markets continue to price a strong likelihood of a 25-basis-point ECB hike in September as elevated energy costs keep Eurozone inflation near 3%. ECB chief economist Lane reinforced the inflation concern but maintained a cautious, meeting-by-meeting stance, suggesting that any further tightening will remain data-dependent. The euro has also drawn support from an improvement in Germany’s ZEW expectations index to 34.2 in August from 26.3, although high energy prices and transport disruptions continue to cloud the region’s growth outlook. Attention now turns to Christine Lagarde’s remarks and the FOMC minutes, while a further escalation in the US-Iran conflict remains a downside risk through its potential to strengthen the safe-haven dollar and intensify Europe’s energy burden.

The pound has come under modest pressure after softer UK labor-market data tempered expectations for near-term Bank of England tightening. Unemployment held at 4.9% in the three months to June, above the 4.8% consensus, while total wage growth slowed to 4.1%, private-sector pay growth weakened to 2.8% and vacancies fell to their lowest level in several years, collectively pointing to cooling labor demand. The figures leave markets pricing only limited BoE tightening through year-end, although renewed energy-driven inflation risks mean policymakers are unlikely to dismiss the possibility entirely. Attention now turns to UK CPI, particularly services inflation, for evidence of whether underlying price pressures remain persistent enough to offset the softer employment picture. Sterling’s downside against the dollar has nevertheless been contained by fading expectations of a September Federal Reserve rate hike following weaker US employment, retail-sales and inflation data.

The yen has strengthened modestly as investors price an increasingly high probability that the Bank of Japan will raise interest rates as early as September. Persistently above-target Japanese inflation and recent BoJ commentary have reinforced the prospect of further policy normalization, while softer US employment and inflation data have reduced expectations for a near-term Federal Reserve hike, narrowing the relative policy gap and weighing on USDJPY. However, the yen’s recovery remains constrained by concerns over Japan’s fiscal outlook, particularly the government’s proposed temporary reduction in the consumption tax on food without a clearly identified replacement revenue source. Attention now turns to Friday’s national CPI report for further evidence on whether domestic inflation is strong enough to support an imminent BoJ move.

The Australian dollar has eased despite a generally supportive domestic rate backdrop, as investors took profits following its recent rise and Australia’s wage data offered no fresh hawkish surprise. The Wage Price Index increased 0.8% in Q2 and 3.2% year-on-year, matching expectations but confirming that annual wage growth is gradually cooling. Nevertheless, RBA Deputy Governor Hauser stressed that inflation remains too high and warned that rates may need to rise again if upside risks from the Middle East conflict, the AI investment boom or weak productivity materialize, reinforcing the RBA’s tightening bias after it held the cash rate at 4.35%. The Aussie is also receiving some underlying support from a softer US dollar, with weak US retail sales, subdued inflation and the recent deterioration in employment reducing expectations for another Fed hike. Attention now turns to Australia’s July employment report for further evidence on whether the domestic economy is slowing sufficiently to ease the RBA’s inflation concerns.

The euro remains close to a two-month high, supported by growing expectations that the ECB will deliver another 25-basis-point rate hike in September as euro-area inflation remains elevated. The euro has also benefited from broad dollar weakness after softer US inflation, employment and retail-sales data reduced expectations for an imminent Fed hike. However, renewed strength in oil prices is limiting the euro’s advance by reviving US inflation concerns and safe-haven demand for the dollar, while also posing a potential terms-of-trade and growth headwind for the energy-importing euro area. The near-term balance therefore remains modestly constructive for the euro, although Wednesday’s FOMC minutes will be important in determining whether the recent pullback in Fed tightening expectations, and corresponding pressure on the dollar, can be sustained. September Fed hike expectations have fallen sharply following the latest softer US data.

The pound remains supported against the dollar, primarily reflecting a favorable shift in relative rate expectations. Softer US inflation, producer-price and retail-sales data have reduced the perceived likelihood of a September Federal Reserve rate hike, weighing on the dollar, while resilient UK growth and recent hawkish comments from Bank of England Chief Economist Pill have reinforced expectations that the BoE could raise rates at least once this year. Sterling’s advance has nevertheless become more cautious ahead of a busy UK data calendar, beginning with Tuesday’s employment report and followed by inflation and retail-sales figures. Particular attention will be paid to unemployment and wage growth, with the latter offering an important signal on domestic inflation persistence and the scope for further BoE tightening. The latest available official figures showed unemployment at 4.9%, although continuing concerns over the reliability of the UK Labour Force Survey warrant some caution when interpreting the release.

The yen remains close to a two-week low against the dollar, with hawkish Bank of Japan expectations struggling to offset concerns about the strength of Japan’s economy. Markets continue to price a high probability of a 25-basis-point BoJ rate increase in September, supported by the latest Summary of Opinions showing that several policymakers favor further tightening amid persistent upside inflation risks. However, weaker-than-expected second-quarter GDP growth, alongside signs that the expansion relied heavily on net exports, government consumption and inventories rather than domestic demand, has raised doubts about how aggressively the BoJ can proceed. At the same time, softer US economic data and reduced expectations for a September Fed hike are helping to limit additional yen selling, leaving USDJPY caught between narrowing policy-rate expectations and lingering concerns over Japan’s underlying growth momentum ahead of Wednesday’s FOMC minutes.

The Australian Dollar remains well supported, benefiting primarily from broad US Dollar weakness as softer US labor, inflation and retail-sales data have reduced expectations for a Federal Reserve rate hike in September. Domestically, sentiment improved after the RBA held the cash rate at 4.35%, with the Westpac Consumer Confidence Index rising 6.0% in August, although it remains well below year-ago levels. The RBA continues to signal that inflation is too high and has not ruled out further tightening, providing an additional yield-based tailwind for the currency, even as markets lean toward an extended pause. Attention now turns to Wednesday’s second-quarter Wage Price Index and Thursday’s labor-market report, although broadly expected outcomes are unlikely to materially alter RBA pricing. Meanwhile, escalating US-Iran tensions and the continued disruption to Middle East shipping present a mixed influence, potentially supporting the Aussie through higher commodity prices while limiting gains through weaker global risk appetite.