The euro remains well supported, benefiting from broad US dollar weakness and expectations that the ECB will raise rates on Thursday. The anticipated move is largely priced in, leaving the currency’s next direction dependent on the ECB’s updated outlook and whether policymakers signal scope for further tightening as elevated energy prices reinforce inflation risks. Resilient eurozone activity has supported the case for higher rates, although soft German industrial data and concerns about the growth impact of expensive energy are limiting conviction. Meanwhile, the dollar has come under pressure from the sharp yen rally, providing an additional lift to EURUSD, but escalating Middle East tensions and upcoming US producer and consumer inflation figures could revive Fed tightening expectations and cap further euro gains.

The pound remains steady against the dollar, supported by broad USD weakness as the BoJ-inspired yen rally weighs on the greenback, alongside the UK government’s emphasis on growth and fiscal discipline. However, sterling’s gains have lacked conviction as traders await monthly UK GDP data for a clearer signal on the domestic economy. Rising expectations for another Fed rate hike and escalating Middle East tensions are also providing some underlying support to the safe-haven dollar, leaving GBPUSD largely range-bound ahead of the UK growth report and key US inflation releases.

The yen has extended its rally to a seven-month high, driven primarily by expectations that the Bank of Japan will raise rates at next week’s meeting following hawkish signals from policymakers. The case for near-term tightening has been strengthened by faster wage growth and an upward revision to second-quarter GDP, while the prospect of a narrower yield gap has encouraged the unwinding of yen-funded carry trades and potential repatriation flows. Lingering intervention concerns and pressure from Washington for a stronger yen have added to the move, although elevated oil prices present a counterweight given Japan’s dependence on energy imports. Attention now turns to US inflation data, with hotter readings potentially reviving Fed tightening expectations and offering the dollar some support against the yen.

The Australian dollar remains well supported, benefiting from broad US dollar weakness and growing expectations that the Reserve Bank of Australia will raise rates again as resilient economic growth and persistent domestic inflation keep policy risks tilted toward further tightening. Stronger-than-expected Chinese inflation data offered little additional lift, suggesting the latest Aussie strength is being driven more by the RBA outlook and external dollar dynamics than by China-related optimism. The upside has nevertheless been restrained ahead of key US inflation data, with expectations of further Federal Reserve tightening, rising oil prices and escalating Middle East tensions supporting the safe-haven dollar and weighing on broader risk appetite.