The euro is trading with a softer tone to start Monday, weighed primarily by external geopolitical risks rather than any fresh eurozone specific catalysts, as escalating tensions in the Middle East and higher oil prices act as a terms-of-trade negative for the region’s energy-importing economies. On the domestic front, the lack of new data or hawkish signals from the ECB is leaving the currency without support, especially as policy expectations remain anchored around a cautious and gradual easing path. Meanwhile, steady policy from China and a broadly firmer US dollar backdrop amid risk aversion are adding to downside pressure, with the euro also reflecting some sensitivity to global trade uncertainty given the bloc’s export-heavy profile.

The yen remains on the back foot to start the week, driven by a mix of geopolitical and structural headwinds that are offsetting its traditional safe-haven appeal. Escalating tensions in the Middle East and the ongoing disruption in the Strait of Hormuz are particularly negative for Japan, given its heavy reliance on imported energy, with higher oil prices worsening the country’s trade balance and growth outlook. This dynamic is limiting yen demand even as broader risk sentiment deteriorates. At the same time, the Bank of Japan’s still accommodative policy stance continues to contrast with relatively tighter global settings, keeping yield differentials unfavorable. On the policy front, rhetoric from Tokyo has intensified, with officials signaling heightened concern over FX volatility and hinting at a rising risk of intervention as USDJPY pushes toward key levels, though for now this has only slowed, not reversed, the yen’s weakness.

The Australian dollar is holding up relatively well on Monday after an initial gap lower, with dip-buying emerging as supportive domestic fundamentals offset a more cautious global backdrop. While renewed US–Iran tensions and a firmer US dollar at the open briefly pressured AUD, the move has been limited by shifting expectations around US monetary policy, with reduced odds of further Fed tightening capping USD upside. At the same time, the RBA’s comparatively hawkish stance continues to underpin the currency, reinforcing yield support for AUD. That said, the currency remains sensitive to broader risk sentiment and global trade dynamics, meaning gains are being tempered as markets weigh geopolitical uncertainty against still-solid carry appeal.