The euro remains under modest pressure as the U.S. Dollar continues to benefit from a more hawkish Federal Reserve outlook following last week’s FOMC meeting. Markets have significantly increased expectations for additional Fed tightening under Chair Kevin Warsh, supporting U.S. yields and widening the policy divergence with the ECB. At the same time, lingering uncertainty surrounding the reported U.S.-Iran peace initiative has encouraged some safe-haven demand for the Dollar after conflicting signals emerged from Washington and Tehran regarding nuclear monitoring commitments. On the euro side, expectations that the ECB is nearing the end of its tightening cycle have limited upside momentum, even as policymakers continue to stress vigilance on inflation. Traders are now focused on the latest PMI data from Germany, the broader Eurozone, and the United States for fresh insight into relative growth trends, with signs of softer Eurozone activity likely to reinforce the current bias favoring the Dollar over the single currency.

The pound has held up relatively well in the face of Prime Minister Keir Starmer’s resignation, suggesting much of the risk may have already been priced in and reflecting resilience from still-elevated UK inflation and expectations that the Bank of England will remain relatively cautious about easing policy. At the same time, a broader risk-off tone in global markets, driven by uncertainty surrounding the US-Iran peace process and lingering geopolitical concerns, has supported the US dollar and weighed on GBPUSD into Tuesday. Investors are also mindful of the Federal Reserve’s increasingly hawkish stance, which has reinforced US yield support and widened the policy divergence narrative. Attention now turns to the latest UK and US PMI data for a clearer read on economic momentum and whether sterling can continue to weather political headwinds better than many of its G10 peers.

The Yen remains under pressure as markets continue to focus on the wide interest rate differential between the U.S. and Japan, with the Federal Reserve maintaining a hawkish bias while the Bank of Japan remains cautious about tightening policy further. Although Japanese inflation remains above the BOJ’s 2% target, recent core-core inflation measures have continued to ease, reinforcing concerns that underlying domestic price pressures are moderating even as higher energy costs linked to Middle East tensions threaten to push headline inflation higher. This leaves the BOJ facing a difficult balancing act, as policymakers are reluctant to tighten aggressively in response to imported cost-push inflation that could undermine the fragile wage-price cycle and economic recovery. Meanwhile, escalating geopolitical risks and concerns over potential disruptions to energy supplies through the Strait of Hormuz have supported safe-haven demand for the U.S. Dollar, helping USDJPY hold near multi-year highs despite persistent intervention warnings from Japanese officials and growing speculation that authorities could step into the market if Yen weakness accelerates further.

The Australian dollar remains under pressure, weighed down primarily by a stronger US dollar as markets continue to price a more hawkish Federal Reserve following last week’s FOMC meeting and Chair Kevin Warsh’s emphasis on price stability. Escalating geopolitical uncertainty surrounding the US-Iran situation and concerns over the Strait of Hormuz have also supported safe-haven demand for the greenback and undermined risk-sensitive currencies such as the Aussie. That said, the broader AUD backdrop remains relatively constructive. Australia’s economy continues to show resilience, inflation remains above target, and the Reserve Bank of Australia has maintained a cautious, mildly hawkish stance, keeping the prospect of further tightening on the table if price pressures persist. Supporting this view, preliminary June PMI data surprised to the upside, with manufacturing improving to 51.2 and services recovering to 49.9, signalling stabilization in domestic activity. Meanwhile, China remains more of a stabilizing influence than a growth engine, helping to prevent a sharper deterioration in sentiment toward Australia’s outlook. For now, however, AUDUSD is being driven more by global risk appetite, Fed expectations, and geopolitical developments than by domestic fundamentals, leaving the currency vulnerable despite generally supportive medium-term fundamentals.

The euro remains supported by a relatively resilient ECB outlook, but is struggling to make further gains against a broadly stronger U.S. Dollar. Recent ECB communication, including signals that policymakers remain cautious about declaring victory over inflation, has helped underpin the single currency and reinforced expectations that rates will stay restrictive for longer. However, EURUSD continues to face headwinds from the post-Fed repricing toward a more hawkish U.S. policy path under Chair Warsh, with markets increasingly factoring in the possibility of additional tightening later this year. Geopolitical developments surrounding the Middle East and uncertainty around the durability of any U.S.-Iran peace agreement have also supported safe-haven demand for the Dollar at times, limiting upside in the euro. As a result, the pair remains caught between a still relatively firm ECB backdrop and a U.S. Dollar that continues to draw support from higher yields, policy divergence, and cautious risk sentiment.

The pound starts the week on the defensive, with GBPUSD slipping back toward the 1.3200 area as investors digest a combination of renewed UK political uncertainty and a more supportive backdrop for the US dollar. Reports suggesting Prime Minister Keir Starmer could outline a timetable for his departure have injected fresh political risk into UK assets, weighing on sterling despite the UK’s relatively resilient economic backdrop. At the same time, the dollar continues to draw support from the Federal Reserve’s hawkish shift under Chair Warsh, with markets now pricing a meaningful chance of additional rate hikes in the months ahead following last week’s policy meeting and emphasis on price stability. While recent UK data, including stronger retail sales and firmer labor market indicators, has helped reinforce expectations that the Bank of England will remain cautious about easing policy, those supportive domestic fundamentals are currently being overshadowed by political headlines and widening policy divergence concerns as investors reassess the outlook for UK growth, rates, and leadership.

The Yen remains under pressure as the divergence between Bank of Japan and Federal Reserve policy continues to dominate price action. While the BOJ recently raised rates to 1.00% and Deputy Governor Himino has maintained a hawkish tone, warning that delaying further tightening risks an inflation overshoot as higher energy costs feed through the economy, markets remain skeptical that the central bank will be able to move aggressively given political resistance from Prime Minister Takaichi, who has publicly called for policy restraint and closer coordination with the government. At the same time, the Fed’s hawkish stance and expectations for additional US tightening have preserved a wide US-Japan yield differential, encouraging carry trades and supporting USDJPY. The Yen has also failed to benefit from intervention warnings from Japanese officials, with investors instead focusing on concerns that higher energy prices and ongoing Middle East tensions could weigh on Japan’s import-dependent economy. As a result, USDJPY remains near multi-year highs, with the balance of risks still tilted toward Yen weakness unless either US yields retreat materially or markets gain confidence that the BOJ can continue its normalization path despite growing political headwinds.

The Australian Dollar remains caught between a still-supportive domestic rate backdrop and a stronger, more defensive US Dollar environment. On the one hand, the RBA’s decision to leave rates unchanged at 4.35% was interpreted as a hawkish pause rather than the end of the tightening cycle, with policymakers signalling that further rate hikes remain possible if inflation proves persistent. That continues to offer underlying support to the Aussie. On the other hand, renewed uncertainty surrounding the US-Iran peace process, including fresh threats from President Trump and lingering concerns around Middle East stability, has weighed on broader risk sentiment and reduced demand for growth-sensitive currencies such as the AUD. China-related developments have been largely neutral, with the PBOC leaving its Loan Prime Rates unchanged as expected, reinforcing a steady policy stance but offering little fresh catalyst for the China-proxy Australian Dollar. As a result, AUDUSD remains anchored around the 0.7000 area, with the currency balancing support from relatively high Australian yields against headwinds from a firmer US Dollar, elevated US rate expectations, and lingering geopolitical uncertainty.

The euro has come under pressure primarily from a resurgent U.S. Dollar following the Federal Reserve’s hawkish policy shift under Chair Warsh. Markets are increasingly pricing the risk of additional Fed tightening later this year, widening the policy divergence between the Fed and the ECB and supporting the Dollar against most major currencies. While the ECB’s recent communication has leaned somewhat hawkish and helped limit the euro’s downside, investors remain focused on the prospect of higher U.S. rates and elevated Treasury yields, which continue to favor Dollar demand. At the same time, easing concerns around a broader Middle East disruption and hopes for renewed diplomatic efforts have reduced some safe-haven demand for the euro, while mixed European growth prospects and softer risk sentiment have left the single currency struggling to regain momentum. Overall, EURUSD remains largely driven by the market’s reassessment of a more restrictive Fed outlook, with any euro support from the ECB being overshadowed by the stronger shift in U.S. rate expectations.

The Pound is ending the week on firmer footing after a much stronger-than-expected UK Retail Sales report reinforced signs of resilience in the consumer sector. Retail sales rose 1.2% in May, more than double expectations, while annual sales growth accelerated to 3.2%, with department stores, online retailers, and technology-related purchases benefiting from warm weather, promotions, and recent product launches. The data helped Sterling recover after recent pressure from softer UK inflation readings and the Bank of England’s decision to leave rates unchanged while maintaining a cautious, data-dependent stance. That said, the strong retail figures are unlikely to materially alter near-term BoE expectations, with policymakers still monitoring evidence that inflation pressures are easing. Meanwhile, broader GBPUSD direction continues to be heavily influenced by the US Dollar, which remains supported by a more hawkish Federal Reserve outlook and higher US yields. As a result, while the retail sales surprise has provided the Pound with a welcome boost, Sterling remains caught between encouraging domestic economic resilience and an external backdrop dominated by Dollar strength.

The Yen remains under pressure primarily because of the widening policy divergence between the Federal Reserve and the Bank of Japan, with the Fed’s hawkish June meeting prompting markets to price in a meaningful chance of additional US tightening while US Treasury yields remain elevated. That dynamic has helped drive USDJPY to its highest levels in decades, even as the pair has pulled back modestly from recent highs. On the domestic side, the BoJ delivered an expected rate hike to 1.00% and continues to signal a gradual normalization path, with recent comments from officials and the April meeting minutes reinforcing expectations for further tightening if economic and inflation conditions permit. However, softer Japanese inflation data and inflation measures still running below the BoJ’s 2% target have tempered expectations for an aggressive hiking cycle, limiting support for the Yen. At the same time, growing concern from Japanese officials over the currency’s rapid depreciation, including renewed warnings that authorities stand ready to respond to excessive FX moves, has increased intervention speculation and helped slow the pace of Yen weakness. More recently, some easing in geopolitical tensions following reports of progress toward a US-Iran agreement and the associated pullback in safe-haven demand for the US Dollar have allowed the Yen to recover modestly, though the broader bias remains for USDJPY strength as long as Fed-BoJ policy divergence persists.

The Australian Dollar remains primarily at the mercy of broader US Dollar dynamics and global risk sentiment, with the currency struggling to regain upside momentum after the Federal Reserve’s hawkish June meeting under Chair Kevin Warsh. The Fed’s shift toward a higher-for-longer policy outlook has boosted the US Dollar and pressured AUDUSD back toward the 0.7000 area, while lingering uncertainty around US-Iran negotiations and Middle East developments has further weighed on risk-sensitive currencies like the Aussie. Domestically, however, the Australian backdrop remains relatively supportive. The Reserve Bank of Australia maintained its hawkish bias at its latest meeting, emphasizing that inflation remains above target and that further tightening cannot be ruled out if price pressures persist. While economic growth has moderated and labor market conditions have softened somewhat, inflation remains sticky enough to justify the RBA’s cautious stance. Australia’s trade balance has improved, China—the country’s largest trading partner—has stabilized rather than deteriorated, and speculative positioning remains historically constructive despite recent trimming of bullish bets. As a result, the near-term direction for the Australian Dollar is likely to remain heavily influenced by US interest rate expectations and risk appetite, though the combination of resilient domestic fundamentals and a still-cautious RBA continues to provide an underlying source of support.

The euro remains primarily driven by the contrast between a newly hawkish Federal Reserve and an ECB that is still viewed as being closer to the end of its tightening cycle. EURUSD came under heavy pressure after the Fed’s June decision, with Chair Kevin Warsh overseeing a hold but delivering a significantly more hawkish message through updated projections that shifted the expected 2026 policy path from rate cuts toward the possibility of further tightening. Markets rapidly repriced Fed expectations, with investors now seeing a meaningful chance of higher U.S. rates later this year, widening the yield advantage in favor of the dollar and weighing on the euro. At the same time, improving risk sentiment following the U.S.-Iran peace agreement has offered some support to the single currency, helping EURUSD recover from post-Fed losses as easing geopolitical tensions reduce demand for traditional safe havens. Overall, while the euro continues to draw some support from resilient Eurozone growth and the ECB’s efforts to keep inflation contained, the dominant near-term driver remains the prospect of a more restrictive Fed policy stance, which has shifted interest rate differentials back in the dollar’s favor and limited upside for EURUSD.

The pound has come under pressure from a combination of softer domestic inflation and a more hawkish shift from the Federal Reserve. UK May CPI data reinforced the view that inflation pressures are gradually easing, with core inflation slowing to 2.6% year-over-year and monthly price growth undershooting expectations, prompting markets to scale back expectations for additional Bank of England tightening. Attention now turns to the BoE decision, where rates are widely expected to remain unchanged, though investors will closely watch the vote split and guidance for clues on the future policy path. At the same time, sterling has been weighed down by broad US Dollar strength after the Fed delivered a hawkish hold, removed its easing bias, and projected a higher rate path, fueling expectations that the next Fed move could be a hike rather than a cut. More recently, hopes surrounding a US-Iran peace agreement and the reopening of the Strait of Hormuz have encouraged some profit-taking in the Dollar and allowed GBPUSD to stabilize off recent lows, though the broader backdrop remains challenging for the pound as narrowing UK rate expectations contrast with a more restrictive Fed outlook.

The Yen remains under pressure primarily because of the widening policy divergence between the Bank of Japan and the Federal Reserve. While the BoJ recently raised rates to 1.0%, its highest level since 1995, Japanese yields remain far below those in the United States, preserving the attractiveness of Yen-funded carry trades. The latest catalyst for renewed Yen weakness came from the Federal Reserve’s hawkish hold, with the updated dot plot signaling one additional rate hike this year and new Fed Chair Kevin Warsh emphasizing that inflation remains too high and that policymakers remain fully committed to restoring price stability. This pushed US yields and the Dollar higher, driving USDJPY above 160. At the same time, Japanese officials have stepped up verbal intervention warnings, with Chief Cabinet Secretary Kihara reiterating that authorities stand ready to respond appropriately to excessive currency moves, helping to slow the Yen’s decline. More recently, optimism surrounding a US-Iran peace agreement and the reopening of the Strait of Hormuz has tempered safe-haven demand for the Dollar and encouraged some profit-taking in USDJPY. Nevertheless, with the US-Japan yield differential still exceptionally wide and uncertainty lingering over the pace of future BoJ tightening, the fundamental backdrop continues to favor Dollar strength against the Yen, even as intervention risks become increasingly elevated near current levels.

The Australian Dollar remains broadly supported by the Reserve Bank of Australia’s relatively hawkish stance, but near-term price action has been dominated by shifts in US interest rate expectations and global risk sentiment. While the RBA has kept the cash rate unchanged at 4.35%, policymakers continue to warn that further tightening remains possible if inflation proves persistent, helping underpin the Aussie from a domestic perspective. More recently, however, AUDUSD came under pressure after the Federal Reserve delivered a hawkish hold, with updated projections showing higher inflation expectations and a shift toward a more restrictive policy path under new Chair Kevin Warsh, widening the yield advantage in favor of the US Dollar. At the same time, improving risk appetite following progress toward a US-Iran ceasefire framework and the reopening of the Strait of Hormuz has offered some relief to the Aussie given its sensitivity to global growth and market sentiment. With Australia’s economic calendar relatively light and domestic fundamentals largely unchanged, the Australian Dollar is currently taking its cues from Fed policy expectations, broader US Dollar direction, and swings in global risk appetite, while the RBA’s willingness to maintain a restrictive policy bias continues to provide an underlying source of support.

The euro has remained underpinned by an increasingly hawkish ECB backdrop, even as EURUSD trades in a relatively narrow range ahead of the Federal Reserve decision. The ECB has already delivered its first rate hike since 2023, lifting the deposit rate to 2.25%, while policymakers, including President Lagarde, have signaled that further tightening remains possible as they seek to prevent elevated energy costs from feeding into broader inflation pressures. Markets continue to price in additional ECB hikes this year, supported by core inflation holding around 2.5% and improving sentiment indicators such as Germany’s ZEW expectations survey. At the same time, attention has shifted toward the Fed, where an expected hold has left investors focused on the policy outlook and whether US officials acknowledge that easing energy prices following progress toward a US-Iran agreement could lessen inflation risks going forward. This dynamic has modestly improved the Euro’s relative rate appeal, although lingering geopolitical uncertainty in the Middle East and any renewed demand for the safe-haven US Dollar continue to act as headwinds. In the near term, the euro’s direction will hinge on whether the ECB reinforces expectations for further policy tightening while the Fed maintains a cautious stance, potentially widening the policy divergence in the single currency’s favor.

Sterling has been supported by an improving global risk backdrop following renewed optimism surrounding a US-Iran peace agreement, which has weighed on safe-haven demand for the US Dollar and helped lift risk-sensitive currencies. At the same time, traders are bracing for a pivotal stretch of UK event risk, with May CPI data and the Bank of England policy decision set to shape expectations for the policy path ahead. Markets have increasingly scaled back expectations for aggressive BoE easing, particularly after elevated energy prices threatened to reignite inflation pressures, even as softer UK growth data has highlighted the difficult balancing act facing policymakers. On the external front, attention is firmly on the Federal Reserve, where rates are widely expected to remain unchanged, with investors instead focused on updated economic projections and guidance on the timing of future policy moves. As a result, the Pound has remained relatively resilient, trading in tight ranges as investors await clarity from both central banks while broader sentiment continues to be influenced by developments in global geopolitics and their implications for inflation and growth.

The Yen remains primarily driven by the evolving policy divergence between the Bank of Japan and the Federal Reserve. Although the BoJ delivered a widely anticipated 25 basis point rate hike to 1.00%—its highest policy rate since 1995—the move has failed to generate sustained support for the Yen as Japanese interest rates remain well below those in the United States. Market participants have also interpreted Deputy Governor Uchida’s cautious post-meeting communication as signaling a gradual approach to any further policy normalization, limiting expectations for additional tightening this year. Concerns that higher energy prices linked to Middle East developments could weigh on Japan’s growth outlook, alongside expectations for more accommodative fiscal measures aimed at easing the burden of elevated living costs, have further undermined the currency. At the same time, optimism surrounding a potential US-Iran peace agreement has reduced safe-haven demand for the Yen, while the US Dollar itself has softened ahead of the Federal Reserve policy decision. Nevertheless, with USDJPY continuing to trade just below the closely watched 160.50 area, markets remain alert to the risk of official intervention should Yen weakness accelerate further.

The Australian Dollar remains underpinned by a combination of resilient domestic fundamentals, a still-cautious Reserve Bank of Australia, and an improvement in global risk sentiment following signs of a temporary easing in Middle East tensions. The RBA’s decision to keep rates unchanged at 4.35% this week was accompanied by a distinctly hawkish message, with Governor Bullock reiterating that inflation remains too high and that further tightening cannot be ruled out if price pressures prove persistent. While Australia’s economy has shown signs of moderation, with softer GDP growth and some cooling in the labor market, inflation remains sticky enough to keep the prospect of restrictive policy firmly in place. Externally, optimism surrounding a US-Iran memorandum aimed at reopening the Strait of Hormuz has supported risk-sensitive currencies such as the Aussie by weighing on safe-haven demand for the US Dollar. Meanwhile, China, Australia’s largest trading partner, continues to provide stability rather than a meaningful growth impulse, with policymakers maintaining an accommodative stance and signalling readiness to preserve liquidity and financial stability. That said, markets remain cautious ahead of the Federal Reserve decision, where any shift in the Fed’s policy outlook could ultimately determine whether AUDUSD can build on its recent recovery above 0.7050 or remains confined within its recent range.

The euro remains underpinned by a combination of improving global risk sentiment and expectations that the European Central Bank may still have further tightening to deliver, even as the Federal Reserve is widely anticipated to leave rates unchanged this week. The latest catalyst supporting EURUSD has been optimism surrounding a US-Iran agreement aimed at reopening the Strait of Hormuz and initiating a fresh round of nuclear negotiations, easing concerns over a prolonged disruption to global energy supplies and weighing on safe-haven demand for the US Dollar. While lingering uncertainty over the final details of the agreement has tempered enthusiasm somewhat, the broader improvement in market sentiment has continued to favor the shared currency. At the same time, investors remain mindful that the ECB has maintained a relatively hawkish bias amid persistent underlying inflation pressures, with markets still pricing in the possibility of additional policy tightening in the months ahead. Attention now turns to the Federal Reserve, where policymakers are expected to keep rates steady, with the tone of Chair Warsh’s guidance and any signals around the timing of future policy adjustments likely to determine whether the dollar can regain traction or allow the euro to extend its recent gains.

The Pound remains caught between shifting global risk sentiment and a pivotal week of central bank and economic event risk. Sterling initially benefited from improved market mood following reports of a US-Iran agreement to reopen the Strait of Hormuz, which helped drive a rally in risk-sensitive assets and weighed on the US Dollar. However, that optimism has faded somewhat as investors await further details surrounding the proposed deal and turn their focus toward the Federal Reserve’s policy decision. The Fed is widely expected to leave rates unchanged this week, but with US inflation proving sticky and labor market conditions remaining resilient, markets continue to price a hawkish bias that has lent underlying support to the Greenback. On the domestic front, the Pound faces an important test from upcoming UK CPI data and the Bank of England meeting, with policymakers also expected to keep rates on hold. Nevertheless, the UK inflation backdrop remains relatively elevated and Sterling has generally outperformed many of its G10 peers in recent weeks on expectations that the BoE may need to maintain restrictive policy settings for longer than previously anticipated. In the near term, GBPUSD appears to be trading more as a function of broad US Dollar dynamics and global risk appetite, but this week’s combination of UK inflation data, the BoE decision and the Fed’s updated guidance is likely to determine whether the Pound can regain momentum above the mid-1.34s or extend its consolidation around the 1.3400 area.

The Yen remains primarily driven by the Bank of Japan’s decision to raise interest rates by 25 basis points to 1.0%, marking another step in the gradual normalization of monetary policy as policymakers respond to persistent inflationary pressures and stronger wage dynamics. The BoJ maintained a hawkish tilt, signaling that further rate increases remain possible should economic activity and prices evolve in line with its forecasts, while warning that underlying inflation risks could overshoot its 2% target amid rising energy costs and broadening price pressures. However, the Yen’s gains have been limited as the rate hike was fully priced in by markets, with investors instead focusing on guidance from Deputy Governor Uchida following Governor Ueda’s hospitalization. Expectations that the BoJ will proceed cautiously from here, combined with concerns that the Japanese government may adopt a more expansionary fiscal stance to cushion households from elevated living costs, have tempered prospects for an aggressive tightening cycle. As a result, USDJPY has remained anchored above the psychologically important 160 level, with traders balancing the supportive impact of higher Japanese rates against lingering uncertainty over the pace of future BoJ hikes, fiscal policy developments, and external risks stemming from Middle East tensions and their potential impact on global energy prices.

The Australian Dollar has been driven by a combination of a still-hawkish Reserve Bank of Australia, improving global risk sentiment and evolving expectations around the outlook for both China and the US Dollar. The RBA left the cash rate unchanged at 4.35% as expected, with Governor Bullock stressing that inflation remains too high and reiterating that policymakers remain prepared to tighten further if required, even though the Board did not consider a rate increase at this meeting. While Bullock acknowledged that recent easing in geopolitical tensions and softer inflation expectations were welcome developments, she emphasized that upside inflation risks persist and that demand still needs to moderate before price pressures can return sustainably to target. Domestically, the Australian economy continues to show resilience, supported by solid demand, a rebound in the trade surplus and inflation that is proving sticky enough to justify the RBA’s cautious stance, although softer GDP growth and signs of labor market cooling have tempered expectations for additional tightening. Externally, the Aussie remains highly sensitive to swings in global sentiment, with optimism surrounding the US-Iran peace agreement and the reopening of the Strait of Hormuz providing support to risk-sensitive assets. Meanwhile, China has shifted from being a major growth engine to more of a stabilizing force for Australia, with mixed activity data offset by an improving trade backdrop. Overall, the broader fundamental backdrop for the Australian Dollar remains constructive, underpinned by the RBA’s hawkish bias and resilient domestic conditions, but further gains are likely to depend on continued improvement in global risk appetite, steady Chinese demand and a softer US Dollar environment.

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.