Recently, central banks have been turning hawkish—will the euro keep falling? This is a question many people are concerned about. Last week, the three central banks of the UK, Eurozone, and the US simultaneously signaled tighter policy, and the market reaction was quite interesting.

The Bank of England kept interest rates unchanged, but voting members began to hint that rate hikes were possible—this was more hawkish than expected. The market now prices in a 60% probability of a rate hike in April. The ECB is also not standing still: it likewise kept policy on hold but warned that inflation risks are rising. Both sides are laying the groundwork for further rate hikes, which pushed the euro up by as much as 1.34% at one point. US Federal Reserve Chair Jerome Powell also previously sent hawkish signals. The US Dollar Index had surged, but it later pulled back amid the coordinated efforts by the UK and Eurozone central banks.

However, whether the euro can continue to rise depends mainly on the situation in the Middle East. Over the weekend, Trump issued a final ultimatum to Iran, which directly changed market expectations for the Federal Reserve. Now, no one expects rate cuts this year—instead, there is more than a 30% probability that markets will expect another rate hike in 2026. If tensions between the US and Iran keep escalating, oil prices will skyrocket, and rate-hike expectations for the Fed will be raised further. In that case, the US dollar would receive support, leaving limited room for the euro to climb. Conversely, if tensions ease, the euro may have an opportunity to rebound.

From a technical perspective, EUR/USD is still below the 21-day moving average, and the bearish atmosphere remains fairly strong. The prior low at 1.139 is a key support level. If it can break through the 21-day resistance line, the next point to watch would be the 100-day moving average at 1.168. Overall, whether the euro can keep falling depends more on how the US-Iran conflict evolves.

The Japanese yen is also showing some notable developments. Last week, USD/JPY first fell and then rose, ending with a small decline of 0.31%. The Bank of Japan kept rates unchanged, and BOJ Governor Ueda Kazuo said that a surge in oil prices has made policy assessment more complicated—if the economic outlook meets expectations, they may continue to raise rates. After the decision, USD/JPY briefly broke below 157.5, but then rebounded back. After all, Japan is heavily dependent on energy imports, and elevated oil prices do put substantial pressure on Japan’s economy. There are also differing views in the market about whether the BOJ will hike rates in April, and the current expectation is a 60% probability. However, some analysts point out that one additional rate hike by the BOJ may not change the broader situation of yen sell-offs—so long as oil prices remain high, it will be difficult for the yen exchange rate to see a true reversal.

Technically, USD/JPY is still above the 21-day moving average, and bullish strength is not weak. If it breaks through the 160 level, the next target is likely around the previous high of 162. Conversely, if it repeatedly gets blocked at the 160 level, the probability of a move lower will increase; at that time, support near the 21-day moving average around 157.8 will come into focus. This week, you should pay special attention to Japan’s CPI and the Middle East situation—especially if USD/JPY breaks above 160. The Japanese government may upgrade verbal intervention, so be careful about the risk of a spike followed by a pullback.