The euro is extending its recent decline as renewed Middle East tensions have revived the dollar’s safe-haven appeal and pressured energy-importing currencies like the euro. The euro has slipped back under 1.17, giving up much of its early-year rally, with Europe seen as more vulnerable to higher oil and gas prices than the more energy-independent United States. Recent ECB comments signal no urgency to shift policy, reinforcing a near-term rate differential that favors the dollar. Unless Gulf tensions ease quickly, risks remain tilted toward further downside in EURUSD, though any de-escalation could trigger a rebound.

The yen is edging higher but USDJPY is still hovering in the 157s, as rising oil prices and a firm dollar offset typical safe-haven demand. BoJ Deputy Governor Himino struck a cautious tone, stressing that policy will depend heavily on Middle East developments and offering no signal of a near-term hike, while softer labor data reinforce a gradual approach. With Japan’s reliance on imported energy making the currency sensitive to higher oil prices, any yen gains are likely to be limited, keeping risks tilted toward renewed USDJPY upside toward 158 if US data stay firm. Although markets still expect modest tightening later this year, the near-term rate differential remains yen-negative, and further weakness could heighten rhetoric or intervention risks ahead of the upcoming US-Japan meeting.

The Australian dollar is relatively flat despite softer regional equities, supported by stronger-than-expected Q4 company profits, which climbed 5.8% versus a 1.9% forecast and showed broad-based strength across mining and services. While RBA Governor Michele Bullock warned that higher oil prices could lift inflation expectations, she stressed it’s too early to assess the net impact, noting that a sustained energy shock could also slow global growth. Overall, the data point to resilient domestic demand and firmer nominal income, reinforcing a hawkish RBA tilt and favoring AUD strength on crosses—particularly against low-yielders—even if broader USD strength caps AUDUSD upside.