The euro has been trading with a mixed bias, supported by expectations that the ECB will deliver another 25bp rate hike this week after Eurozone inflation accelerated to 3.2%, reinforcing the central bank’s hawkish stance and keeping the prospect of additional tightening on the table. Recent data has also been modestly encouraging, with Eurozone Sentix investor confidence improving in June, suggesting sentiment is becoming less pessimistic despite ongoing growth concerns. At the same time, upside in the single currency has been capped by renewed geopolitical uncertainty in the Middle East, with investors gravitating toward the safe-haven US Dollar after comments from Israeli Prime Minister Netanyahu indicated the conflict with Iran and Hezbollah may not yet be over. Looking ahead, the market’s focus is squarely on Thursday’s ECB decision and President Lagarde’s guidance on the policy outlook, while Wednesday’s US CPI report could also prove pivotal for EURUSD by influencing expectations around the Federal Reserve path and broader US Dollar direction.

The pound is finding solid underlying support on dips, backed by the UK’s one of the highest policy rates in the G7 (tied with the US at 3.75%) and a resilient inflation outlook that keeps the Bank of England from cutting rates aggressively. Despite a stronger-than-expected US jobs report reinforcing expectations of a more restrictive Federal Reserve that could even hike later in 2026, the yield advantage and BoE’s cautious stance continue to provide a firm floor for Sterling. While the BoE remains mindful of weakening growth, elevated energy prices are expected to keep inflation risks tilted higher toward 4%, limiting the scope for rapid easing and reinforcing rate support for the pound. The recent Israel-Lebanon ceasefire has improved risk sentiment and reduced safe-haven flows into the dollar, offering further tailwinds for GBPUSD on dips, even as lingering geopolitical tensions around Iran, the Gulf, and the Strait of Hormuz maintain a cautious backdrop. With traders now looking toward Friday’s UK GDP data for signs of resilience and tomorrow’s US inflation and labor market releases for Fed clues, the overall setup leaves GBPUSD well-supported on weakness while remaining capped by superior US fundamentals, favoring a range-bound to modestly constructive bias.

The yen remains primarily driven by the widening policy divergence between the Bank of Japan and the Federal Reserve, with stronger-than-expected US employment data reinforcing expectations that US rates will remain higher for longer and helping keep USDJPY above the psychologically important 160.00 level. At the same time, the yen continues to draw support from rising expectations for further BoJ policy normalization after stronger Japanese wage growth data reinforced the case for additional tightening later this month. However, the dominant theme remains growing intervention risk, with Japanese Finance Minister Katayama again warning that authorities stand ready to take decisive action against excessive currency weakness, while many market participants increasingly view the 160.00 area as a potential trigger point for official action. A modest easing in Israel-Iran tensions has also reduced safe-haven demand for both the US dollar and yen, leaving interest rate differentials and intervention concerns as the key drivers of price action ahead of this week’s US inflation data, which could significantly influence expectations for the Fed and the next move in USDJPY.

The Australian dollar is finding support from an improving global risk backdrop and encouraging Chinese economic data, with AUDUSD rebounding toward 0.7050 after recent two-month lows. Easing tensions in the Middle East have weighed on the US dollar as oil prices retreat and investors become more willing to embrace risk, providing a tailwind for the Aussie. At the same time, stronger-than-expected Chinese trade figures have reinforced the outlook for Australia’s largest trading partner, with exports and imports both accelerating sharply in May, highlighting resilient demand for commodities, semiconductors and AI-related hardware. Domestically, the broader fundamental picture remains constructive, supported by still-elevated inflation and a Reserve Bank of Australia that continues to signal a cautious, hawkish stance, keeping the prospect of lower rates distant for now. While Australia’s economy has shown some signs of moderation through softer growth and a cooling labor market, inflation remains above target and policymakers continue to emphasize that policy must stay restrictive. As a result, the medium-term outlook for the Aussie remains underpinned by relatively high Australian yields, resilient domestic fundamentals and stabilization in China, although near-term direction continues to depend heavily on global risk sentiment, US dollar dynamics and geopolitical developments.