The strength of the US dollar received significant support as investors focused their attention on the progress of negotiations to end the conflict in the Middle East, while also assessing the monetary policy path under the new Chairman of the Federal Reserve (Fed), Kevin Warsh.
On May 22nd, the US dollar index, a measure of the greenback's strength against a basket of major currencies, rose 0.04% to 99.24. The dollar's rise weakened many other major currencies. Specifically, the euro fell 0.06% to 1.1611 USD/euro. Similarly, the Japanese yen declined 0.11% to 159.13 yen/USD, amid data showing Japan's core inflation in April 2026 fell to its lowest level in four years. The Canadian dollar also recorded its third consecutive week of decline, at one point falling to 1.3822 CAD/USD, its lowest level since April 13th.
The main driver influencing the foreign exchange market last week was the complex developments in diplomatic relations in the Middle East. On May 22, US Secretary of State Marco Rubio stated that negotiations between the US and Iran had made “some progress” but there were still no clear signs of an early agreement to prevent a renewed conflict. However, the head of US diplomacy also cautioned against “overestimating expectations,” noting that many previous rounds of negotiations, while described as having made progress, ultimately ended in deadlock.
The cautious sentiment among investors also stems from the persistently high price of crude oil, raising concerns about sustained inflationary pressure. The escalating energy prices have dealt a severe blow to US consumer sentiment, causing the consumer confidence index to plummet to a record low in May 2026. Analysts believe that the high cost of gasoline is increasing concerns about household affordability, thereby directly impacting demand for risky assets and reinforcing the safe-haven status of the US dollar.
Besides geopolitical factors, the market is reassessing the trajectory of US interest rates following personnel changes and shifts in stance at the monetary authority. Kevin Warsh has officially been sworn in as Chairman of the Fed. At the same time, Fed Governor Christopher Waller sent a hawkish signal, suggesting the agency should abandon its tendency toward easing monetary policy and leaving open the possibility of raising interest rates if inflation does not subside. According to CME Group's FedWatch tool, the market currently prices a 58% chance of at least one 25 basis point interest rate hike by the end of 2026.
In the bond market, the yield on 10-year U.S. Treasury bonds edged down 2.6 basis points to 4.558%. Earlier in the week, a sell-off had pushed yields to multi-month or multi-year highs, with the 10-year yield on May 19 reaching its highest level since January 2025. Investors are concerned that prolonged energy disruptions due to the conflict will seep into core consumer prices, potentially forcing regulators to implement a tighter monetary policy response.
Rhona O'Connell, an expert from StoneX, noted that market participants are focusing their attention on the situation in the Strait of Hormuz and widespread supply chain disruptions, leading to concerns about inflation and the possibility of interest rate hikes.
Source: https://baotintuc.vn/thi-truong-tien-te/dong-usd-ap-sat-muc-cao-nhat-trong-6-tuan-20260523120241017.htm
Comment (0)