The euro is modestly higher on the day but still set for a weekly loss as markets reassess growth and policy amid renewed trade risks. The European Central Bank left rates unchanged at 2% and struck a patient, data-dependent tone, saying policy is in a “good place” even as uncertainty rises from fresh tariff threats by President Trump and ongoing geopolitical tensions. With inflation soft but growth holding up—helped by fiscal support in Germany—markets see little chance of near-term ECB moves, while expectations of further easing from the Federal Reserve underpin a constructive medium-term EURUSD outlook, with several banks still looking for a gradual move back toward the low-1.20s over the next year as rate gaps narrow and reserve managers diversify into euros on dips.

The yen edged firmer into the close as investors stayed cautious ahead of Japan’s Lower House election, wary of fiscal risks and reluctant to push USDJPY higher despite solid demand at a 30-year JGB auction. While stronger bond buying helped long-end yields ease, it hasn’t meaningfully supported the yen, with markets still focused on the prospect of looser fiscal policy and only gradual BOJ normalization. Meanwhile, December household spending fell much more than expected, underscoring fragile consumer demand and reinforcing expectations that the BOJ will struggle to tighten aggressively—supportive for JGBs but a headwind for sustained yen strength.

The Aussie dollar is stabilizing after Thursday’s sharp drop, supported by Australia’s recent rate hike, still-elevated inflation, and a backdrop of higher yields, steady growth, and a positive current account—all of which argue for a firmer currency over time. Near-term pressure from the global tech selloff has weighed on high-beta FX, but markets continue to price further RBA tightening, while China’s steady mid-4% growth outlook and resilient commodity demand remain key external supports. With the yuan expected to strengthen modestly and capital flows rotating toward higher-yielding, resource-linked currencies, AUDUSD has scope to move back toward 0.71, especially given that the Aussie still looks undervalued versus long-run fair-value estimates once risk sentiment settles.