Forex News

• The Greenback starts the week on the defensive, with the focus on US-Iran peace talks.
• Markets appear hopeful about a US-Iran deal that reopens the Strait of Hormuz.
• The DXY slips back below 99.00, hitting multi-day troughs.

The US Dollar (USD) kicks off the new trading week on the back foot as investors continue to assess news that a potential US-Iran deal could be clinched anytime soon.

Geopolitics remain centre stage

Against that backdrop, the US Dollar Index (DXY) reverses two consecutive daily advances and refocuses on the downside, breaching below the 99.00 support to hit new multi-day troughs.

The generalised improvement in the risk-linked universe comes in response to steady rumours that the US and Iran could clinch an agreement that would allow reopening the vital Strait of Hormuz.

In the meantime, these prospects continue to push crude Oil prices lower, alleviating inflation concerns and, by the same token, the idea that the Federal Reserve (Fed) might keep its cautious stance for longer than initially anticipated.

Meanwhile, there is no activity in the US markets in observance of the Memorial Day holiday on Monday. Next on tap for the US doclet will be the always-relevant Consumer Confidence tracked by the Conference Board, seconded by housing data, all scheduled for Tuesday.

Key levels to watch

So far, the DXY is trading with modest losses near the 99.00 yardstick. The resurgence of the upside momentum could challenge the May top at 99.51 (May 21), seconded by the 2026 ceiling at 100.64 (March 31).

On the flip side, bears continue to target the critical 200-day SMA at 98.56 prior to the May valley at 97.62 (May 6). Once this area is cleared, the index could embark on a probable visit to the February floor at 96.49 (February 11), all preceding the 2026 bottom at 95.55 (January 27).

Finally, the daily Relative Strength Index (RSI) remains close to the 53 mark, while the Average Directional Index (ADX) around 18 suggests a still colourless trend.

UOB’s Quek Ser Leang and Lee Sue Ann note that USD/CNH has slipped toward the lower end of its recent range after trading tightly between 6.7923 and 6.8033. They see rapidly increasing downward momentum that could test major support at 6.7820, though it is unclear if a clear break will occur, and still frames price action as a 6.7820–6.8220 range unless 6.7820 gives way decisively.

Offshore Yuan keeps Dollar in defined band

"24-HOUR VIEW: USD traded within a narrow range of 6.7964/6.8080 last Thursday. On Friday, we indicated that “the price action provides no fresh clues,” and we stated that USD “could trade between 6.7920 and 6.8060.” USD then traded between 6.7923 and 6.8033, closing largely unchanged at 6.7971 (-0.05%). USD opened lower today and the rapidly increasing downward momentum suggests USD could test the major support at 6.7820. Currently, it is unclear whether USD has enough momentum to break clearly below this level. To keep the momentum going, USD must not break above 6.7995 (minor resistance is at 6.7955)."

"1-3 WEEKS VIEW: Last Thursday (21 May, spot at 6.8010), we highlighted that “the current price movements are likely part of a range-trading phase between 6.7820 and 6.8220.” Although short-term downward momentum is increasing after the sharp drop this morning, it is unclear for now whether USD can break clearly below this level. In other words, we continue to expect range-trading for now. Looking ahead, if USD breaks and holds below 6.7820, it could trigger a continued decline in USD."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Scotiabank’s Global FX Strategy team, including Shaun Osborne and Eric Theoret, notes that the Canadian Dollar is flat against the Dollar and underperforming other G10 currencies due to its differentiated risk profile. They highlight that USDCAD remains driven by relative Bank of Canada and Federal Reserve policy expectations, with key domestic events including a Deputy Governor speech, the Financial Stability Report, and Q1 GDP data later this week.

Canadian Dollar lags broader G10 gains

"The CAD is trading flat to the USD, failing to capture some of the broader themes that have propelled other G10 currencies. The CAD’s relative underperformance is understandable, and reflects its differentiated risk profile that leaves it less vulnerable to weakness in periods of risk aversion but also less prone to strength in risk appetite."

"The near-term focus for the CAD remains centered on the outlook for relative central bank policy, given the material widening in interest rate differentials that has reflected a softer repricing of the BoC’s path along with a firming in the outlook for the Fed."

"The BoC’s calendar includes Dep. Gov. Vincent’s speech scheduled for Tuesday and the Financial Stability Report set for release on Thursday. In terms of data, Q1 GDP is set for release on Friday, along with the monthly print for March. "

" Bullish—the RSI is bullish, climbing into the mid-60s as it creeps toward the overbought threshold at 70. The 200 day MA (1.3812) appears to be offering some short-term congestion with some resistance and inability to extend much beyond the trend level."

" Additional resistance appears limited ahead of 1.39. Conversely, we see little scope for support ahead of 1.375, around the 50 day MA (1.3749)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Citing mediators, the Wall Street Journal (WSJ) reported on Monday that progress toward finalizing an agreement to end the war between the United States (US) and Iran has slowed down, citing ongoing disagreements over Iran's nuclear program and Tehran's demand for financial relief.

According to the news outlet, US President Donald Trump also faced opposition from hardline members of his party, who voiced their concerns over leaving Iran's nuclear program intact and relieving financial pressure on the country's leadership.

Market reaction

The US Dollar (USD) Index recovered slightly from session lows on this headline and was last seen fluctuating at around 99.00, still down about 0.3% on the day.

Brown Brothers Harriman’s (BBH) Elias Haddad expects the Bank of Korea (BoK) to hold its policy rate at 2.50%, but warns of a hawkish surprise aimed at curbing Korean Won (KRW) weakness. KRW has been one of the worst performers since the Iran war due to South Korea’s negative energy balance, with officials calling the drop excessive as swaps price 125 bps of hikes over 12 months.

Policy hold with risk of hawkish surprise

"BoK is expected to keep the policy rate unchanged at 2.50% for an 8th consecutive meeting."

"The risk is a hawkish surprise to curtail KRW weakness."

"KRW is the fourth worst performing currency since the start of the Iran war on February 28, largely because of South Korea’s negative net energy balance."

"Last week, South Korean FX authorities warned that the currency’s drop is “excessive relative to economic fundamentals, and will take decisive action if necessary”."

"The swaps curve price in nearly 125bps of hikes in the next twelve months."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

• USD/JPY consolidates after opening the week with a bearish gap as easing US-Iran tensions pressure the US Dollar.
• Japan’s import-dependent economy remains vulnerable to elevated Energy prices despite the pullback in Crude Oil prices.
• Intervention fears near the 160.00 level limit upside momentum in the pair.

USD/JPY consolidates on Monday after opening the week with a bearish gap as the US Dollar (USD) comes under pressure amid growing optimism that the United States (US) and Iran are moving closer toward a deal that could eventually reopen the Strait of Hormuz. At the time of writing, the pair is trading around 158.90, remaining confined within its recent one-week range.

Fresh hopes for de-escalation in the Middle East emerged over the weekend after several news reports suggested Washington and Tehran were making progress toward a temporary framework agreement aimed at ending the war. A potential deal reportedly includes a 60-day ceasefire extension, the reopening of the Strait of Hormuz and the removal of the US naval blockade to Iranian ports, while negotiations over Iran’s nuclear program would continue.

The latest developments send Oil prices lower, with West Texas Intermediate (WTI) slipping to its lowest level since May 7, while the US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, retreats toward the 99.00 mark.

However, the Japanese Yen (JPY) is struggling to benefit from the softer US Dollar as Energy prices remain well above pre-conflict levels, continuing to pressure Japan’s import-dependent economy. Even if a deal is eventually reached and the Strait of Hormuz fully reopens, restoring shipping flows and normalizing supply chains could take time, leaving the Yen vulnerable to elevated Energy costs in the near term.

Japanese Prime Minister Sanae Takaichi said on Monday that the government will introduce support measures to curb household electricity and gas bills from July through September. Takaichi added that Japan will compile an extra budget worth more than ¥3 trillion, with around ¥500 billion allocated specifically for electricity and gas subsidies.

At the same time, upside in USD/JPY also appears limited as traders remain cautious about the risk of intervention by Japanese authorities near the 160.00 handle, following the sharp Yen-buying moves seen in late April when the pair briefly climbed above that level.

Still, the broader upside bias in USD/JPY remains supported by the wide interest rate differential between the Federal Reserve (Fed) and the Bank of Japan (BoJ). Recent Oil-driven inflation concerns have reinforced expectations that the Fed could remain patient on rate cuts and keep interest rates higher for longer, while the BoJ is expected to maintain a gradual pace of policy normalization.

HSBC Asset Management spotlights Asia’s small-cap stocks as a strong performer over the past five years, outperforming regional large caps with lower volatility and better sector diversification. The report notes rapid pre-promotion gains for firms moving into the MSCI Asia ex-Japan large-cap index and highlights India as a heavily weighted small-cap market with under-researched opportunities and potential profit growth.

Small caps deliver diversified Asia exposure

"An unsung story in global stocks over the past five years has been Asia’s small-cap stocks. Over that period, they have outperformed their large- cap peers in the region by nearly 3% annualised at the index level – and done so with lower volatility and more balanced sector diversification."

"Key to this is the rapid returns that smaller firms can deliver. Let’s look at the performance stats of 150 stocks promoted to the MSCI Asia ex-Japan large-cap index from the small-cap index in the early 2020s."

"The year before promotion, those stocks saw stunning average gains of 245%, but that fell to 18% in their first year as large caps."

"In terms of diversification, the global tech rally means that Taiwan and South Korea now have significant weightings in both the Asia small cap and large cap indices. Another country heavily weighted in the small-cap index is India, which some analysts highlight as a source of under-researched opportunities and potential profit growth."

"Overall, this blend of robust performance and broad sector exposure supports the case for thinking big on Asia."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

TD Securities economists, led by Robert Both, expect the Bank of Canada to keep the overnight rate at 2.25% through 2026 before lifting it back to a 2.75% neutral level in 2027. They see higher Oil-driven inflation as a manageable shock, with well-anchored expectations and muted core momentum allowing policymakers to look through a temporary rise in headline CPI toward roughly 3% in Q2.

Policy on hold despite Oil shock

"We look for the Bank of Canada to stay on hold at 2.25% through 2026 before a return to neutral (2.75%) next year, with 25bp hikes in January and March."

"Higher oil prices resulting from US strikes on Iranian and subsequent threats to global crude supply have introduced a material shock for inflation, but we believe the Bank can remain patient as it waits for more clarity on the geopolitical outlook and spillovers to domestic CPI."

"We look for inflation to peak ~3% in Q2, which is above BoC projections in the April MPR, but the combination of well anchored expectations, lower inflation breadth, and muted core inflation momentum leave the Bank well positioned to look through stronger headline CPI."

"Deputy Governor Vincent is scheduled to speak on Tuesday, May 26th, about "Trends in the Labour Market and Structural Change in the Canadian Economy"."

"On May 28th, the Bank will publish its updated Financial System Review at 10:00 ET, ahead of an 11:00 press conference with Governor Macklem and Senior DG Rogers."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

In a post published on Truth Social on Monday, United States (US) President Donald Trump noted that negotiations with the Islamic Republic of Iran are proceeding nicely.

"Deal for all or, no Deal at all — Back to the Battlefront and shooting, but bigger and stronger than ever before — And nobody wants that," Trump added.

Meanwhile, Reuters reported that Iranian top negotiator Qalibaf and foreign minister Araqchi are in Doha to meet Qatar’s PM over a potential US-Iran deal to end the conflict.

"Discussions in Doha are primarily focused on Strait of Hormuz and highly enriched uranium," Reuters added and further stated that Iran's central bank governor is also a part of the delegation in Doha to discuss a potential release of frozen Iranian funds as part of an eventual final agreement.

Market reaction

The US Dollar (USD) remains under pressure in the second half of the day on Monday. At the time of press, the USD Index was down 0.35% on the day at 98.97.

UOB’s Quek Ser Leang and Lee Sue Ann expect USD/SGD to edge lower and test 1.2760 in the near term, though a sustained break below that level is unlikely. They maintain a 1–3 week range-trading view between 1.2730 and 1.2820, with major support at 1.2730 seen as intact.

Dollar-Singapore Dollar stays range bound

"24-HOUR VIEW: While we expected USD to edge lower and test 1.2760 last Friday, we stated that “a continued decline below this level is unlikely.” We added, “resistance is at 1.2795; a breach of 1.2805 would indicate that the current mild downward pressure has eased.” However, USD traded in a relatively quiet manner between 1.2776 and 1.2805. USD closed at 1.2804 (+0.20%) but dropped on the open today. There has been a slight increase in downward momentum, and we continue to expect USD to edge lower and test 1.2760. Based on the current momentum, a continued drop below this level remains unlikely. We do not expect the major support at 1.2730 to come under threat. On the upside, a break above 1.2800 (minor resistance is at 1.2790) would indicate that USD is likely to range-trade instead of edging lower."

"1-3 WEEKS VIEW: We highlighted last Thursday (21 May, spot at 1.2780) USD “has likely entered a range-trading phase,” and we expected it to “trade between 1.2730 and 1.2820.” We continue to hold the same view."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)