The euro is finding renewed support, primarily driven by an improvement in global risk sentiment following signs of de-escalation in the Middle East, with the pause in US-led shipping operations through the Strait of Hormuz helping to ease immediate energy and geopolitical concerns. This has weighed on the US Dollar via reduced safe-haven demand, allowing EURUSD to push back above the 1.17 handle. At the same time, the euro’s upside remains tempered by lingering external risks, particularly around trade tensions, as the European Commission continues to push back against potential US tariff increases and seeks clarity on existing trade agreements. From a monetary policy perspective, the European Central Bank remains cautiously hawkish, with policymakers keeping the door open to further tightening if inflation fails to moderate, providing an underlying floor for the currency. However, this support is counterbalanced by a still-fragile Eurozone growth backdrop, leaving the euro largely driven by external dynamics—namely shifts in global risk appetite and the direction of the US Dollar—rather than a clear domestic catalyst.

The yen remains driven by a clear divergence between short-term policy action and deeply negative underlying fundamentals, with the latest sharp move lower in USDJPY primarily reflecting aggressive intervention from Japan’s Ministry of Finance rather than a shift in macro dynamics. Authorities have stepped in forcefully to defend the currency—particularly after renewed upside pressure toward the 158–160 zone—successfully pushing the pair to multi-week lows and signaling a stronger willingness to lean against speculative positioning. However, the broader backdrop remains firmly Yen-negative. Elevated oil prices, driven by ongoing tensions around the Strait of Hormuz, are worsening Japan’s terms of trade as a major energy importer, while wide rate differentials versus the still-hawkish Federal Reserve continue to favor carry trades. Although the Bank of Japan is gradually moving toward normalization, policy remains comparatively accommodative, limiting support for the currency. As a result, intervention is best seen as a tool to slow and smooth the pace of depreciation rather than reverse it, with the sustainability of any yen strength ultimately hinging on a meaningful easing in geopolitical tensions and energy prices rather than domestic policy shifts alone.

The Australian Dollar is being driven higher by a combination of improved global risk sentiment and a softer US Dollar, as easing tensions around the Middle East and growing optimism around a potential US-Iran agreement have reduced safe-haven demand and pushed oil prices off their recent highs. This has helped temper inflation concerns globally, weighing on expectations for further tightening from the Federal Reserve and undermining the USD, which in turn is supporting AUDUSD toward fresh multi-year highs. At the same time, the Reserve Bank of Australia continues to provide an important anchor, having recently raised rates to 4.35% and maintained a cautious bias amid still-sticky inflation, even as it signals policy is now restrictive and likely shifting toward a pause. Domestically, the economy remains relatively resilient, though there are clear signs that momentum is softening, while China—Australia’s key trading partner—is acting more as a stabilizer than a growth driver despite pockets of stronger data. Overall, the Aussie is benefiting from the external environment—particularly USD weakness, improving risk appetite, and supportive yield dynamics—but the move remains somewhat fragile and highly dependent on continued stability in global macro and geopolitical conditions.