The euro remains under pressure, weighed down by rising energy costs and a weaker trade outlook. ECB officials, including Villeroy, are pushing back against expectations for rate cuts, emphasizing the need to contain inflation risks—especially from higher energy prices feeding into wages—while keeping policy flexible. With oil surging and inflation forecasts rising, the ECB is prioritizing price stability even as growth slows, leaving the euro vulnerable amid this mix of economic strain and persistent inflation concerns.

The yen edged slightly higher in Asian trading, supported by a rise in Japan’s 2-year yields to a multi-decade high and growing expectations for additional rate hikes this year, which have helped counter pressure from high energy prices. While services inflation came in slightly stronger, it hasn’t meaningfully shifted expectations for the Bank of Japan’s gradual policy path. Instead, markets remain more focused on mixed signals around US-Iran talks, with ongoing tensions reinforcing the likelihood of a prolonged conflict and continued support for the US dollar.

The Australian dollar is under mild pressure on Thursday. Reserve Bank of Australia Governor Kent warned that rising oil prices are creating a difficult policy trade-off, pushing inflation higher while slowing growth, with the biggest concern being longer-term inflation expectations. Meanwhile, with tensions unresolved in the US-Iran conflict, the AUD remains under pressure as the US dollar continues to see strong demand across global markets.