The US Dollar Index (DXY) rose towards 98.80, reaching a two-week high after US Retail Sales increased 0.5% in April. The dollar also gained support after reports that Stephen Miran submitted a resignation letter from the Federal Reserve Board of Governors, opening a path for Kevin Warsh as Fed Chair.
EUR/USD fell towards 1.1670 as rising US Treasury yields and broad demand for the dollar weighed on the euro. GBP/USD dropped to a one-month low near 1.3400, and the US dollar was the strongest against the British Pound.
USD/JPY climbed towards 158.30, a two-week high, as US-Japan yield differentials widened after hotter US inflation data. AUD/USD slipped towards 0.7220, following reports that Donald Trump and Xi Jinping discussed expanding economic co-operation, increasing Chinese investment, and boosting Chinese purchases of US agricultural products.
WTI traded near $97 per barrel as markets monitored the Strait of Hormuz and the Middle East conflict, with reports that Trump and Xi agreed the strait must remain open. Gold fell towards $4,660 as higher US yields and tighter policy expectations reduced demand for non-yielding assets.
Data due on Friday, May 15 includes France April CPI (EU norm YoY and YoY), the US May NY Empire State Manufacturing Index, and US April Industrial Production MoM.
We are seeing a very different market landscape than what was observed around this time in May 2025. Back then, we saw the US Dollar Index surge toward 98.80 on strong retail sales and the prospect of a more aggressive Federal Reserve. Today, the DXY is trading much softer around the 95.50 level as concerns over slowing global growth weigh on sentiment.
The market’s focus has shifted dramatically from the hawkish expectations that followed Kevin Warsh’s appointment as Fed Chair last year. While the initial rate hikes did strengthen the dollar in 2025, recent data shows the impact on the economy with the latest NY Empire State Manufacturing Index printing at -2.5, indicating contraction. We now see futures markets pricing in a 70% chance of a Fed rate cut by the fourth quarter, a major reversal from last year’s tightening cycle.
This has allowed EUR/USD to recover from its fall toward 1.1670 in May 2025, with the pair now consolidating above 1.2100. Similarly, GBP/USD has climbed back to the 1.3850 area from its low near 1.3400, as the initial uncertainty around Prime Minister Starmer’s fiscal plans has eased and UK inflation shows signs of stabilizing. Recent data from the Office for National Statistics showed UK core CPI easing to 3.9% year-over-year, its lowest level since early 2025.
The widening US-Japan yield differential that pushed USD/JPY toward 158.30 last year has since compressed significantly. With the Fed signaling a potential pivot and the Bank of Japan slowly moving away from its ultra-loose policy, we see the pair trading closer to 145.00. This suggests options traders should be wary of further downside potential if US economic data continues to soften.
While WTI crude oil was trading at a tense $97 per barrel in May 2025 amid fears over the Strait of Hormuz, prices have since moderated to around $85. The focus has shifted from immediate supply disruptions to concerns about weakening demand, which was highlighted by last week’s EIA report showing a surprise inventory build of 2.1 million barrels. The constructive dialogue between the US and China that we saw in 2025 has not been enough to offset fears of a broader economic slowdown.
Gold has been a major beneficiary of this changing environment, moving in the opposite direction from what we saw last year. While rising yields pushed the precious metal down toward $4,660 in May 2025, expectations of Fed rate cuts and a weaker dollar have fueled a rally. We are now seeing gold test fresh highs above the $4,800 level, making long positions via call options an attractive strategy for hedging against further economic uncertainty.
