The euro remains under pressure as concerns over France’s budget deficit, rising borrowing costs and ability to deliver fiscal savings undermine confidence, with political uncertainty in Spain adding to the cautious mood. Uncertainty over potential ECB intervention is also weighing, as its bond-market backstop is conditional on fiscal and economic policies. Higher long-term yields are tightening financial conditions and could constrain further ECB rate increases, although Nagel’s warnings about upside inflation risks offer some support. Meanwhile, weaker US jobs data have reduced expectations for an October Fed hike, providing a partial counterweight to Europe’s fiscal concerns and tempering support for the dollar.

The pound remains caught between support from expectations for tighter Bank of England policy and pressure from a broadly firm US dollar. Sticky inflation, fueled by elevated energy prices, and recent comments from BoE officials have reinforced rate hike expectations, while France’s fiscal troubles have helped sterling outperform the euro. Against the dollar, however, geopolitical uncertainty and elevated US Treasury yields continue to cap gains. Softer US employment data have reduced expectations for an October Fed hike, but persistent inflation concerns are keeping further tightening in play. Attention now turns to Wednesday’s FOMC minutes and central bank commentary for clearer guidance on the relative policy outlook.

The yen is drawing support from expectations of further Bank of Japan tightening, with reports suggesting policymakers could acknowledge this month that underlying inflation has broadly reached the 2% target. That would strengthen the case for a December rate increase, although officials appear inclined to assess the impact of September’s hike before moving again. However, renewed dollar strength continues to constrain the yen: softer US employment data have reduced expectations for an October Fed hike, but persistent inflation pressures are keeping further US tightening in play. The balance remains between Japan’s gradual policy normalization and a US rate outlook that continues to support the dollar.

The Australian dollar is holding steady as easing global inflation concerns offset weaker domestic confidence. Consumer sentiment fell 4.7% in October, its second consecutive monthly decline, highlighting pressure on households from higher fuel costs and interest rates. While the RBA’s recent tightening offers yield support for the currency, it also raises concerns about consumer spending and growth. Westpac IQ Meanwhile, falling oil prices following the announced G7 emergency reserve release have eased fears of further inflation pressure and tighter US monetary policy, helping support the risk-sensitive Aussie. However, renewed Houthi attacks on Saudi targets threaten that relief, leaving the currency vulnerable to another rise in energy prices and stronger safe-haven demand for the US dollar.