The euro is modestly higher, stabilizing after last week’s four-year high as a softer dollar offered mild support ahead of this week’s ECB meeting, where rates are widely expected to remain unchanged. Euro-area growth surprised to the upside in Q4, lifting 2025 GDP to 1.5% on solid domestic demand, while recent data from Germany and Spain point to stickier-than-expected inflation, reinforcing signs of resilient underlying price pressures. Against this backdrop of firmer growth, persistent inflation and elevated geopolitical risks, the ECB is likely to stick with a “steady hand,” keeping the deposit rate at 2% and avoiding a dovish pivot, which should help keep rate differentials stable and provide support for the euro.

USDJPY slipped as traders grew cautious ahead of Japan’s Feb. 8 snap election and remained hesitant to push the pair higher after recent volatility and intervention fears, leaving it stuck in a mid-150s range. At the same time, the Bank of Japan is sounding more serious about rate hikes as inflation stays above target, prompting markets to pull forward expectations toward April, though officials are still signaling only gradual tightening. That keeps yield gaps wide and limits near-term yen strength. Overall, positioning looks wary of chasing USDJPY higher given intervention risk and a potentially earlier BOJ move, but wide rate differentials continue to support the pair—suggesting range trading with a mild upside bias for now, while rallies into the upper-150s look increasingly vulnerable to policy or political shifts.

The Aussie jumped about 0.9% in Asia after the RBA delivered a widely expected 25bp hike, lifting rates to 3.85% and reinforcing Australia’s position at the hawkish end of the G10. Policymakers pointed to renewed inflation pressures from firm demand, tight labor markets, and lingering capacity constraints, arguing policy needed to lean harder against growth to keep inflation from settling above target. The move helped the currency rebound from recent weakness, though attention now shifts to whether this was a one-off “insurance” hike or the start of a short tightening phase—either way, after a strong run since December, further gains may be harder to come by, with resistance likely near 0.71.