The US Dollar Index (DXY) held near 99.20 after US Manufacturing PMI data supported expectations that the Federal Reserve may be cautious on rate cuts. The DXY set a new daily high on Thursday and logged an eighth straight day of higher highs.
Richmond Fed President Thomas Barkin said policy is “in a good place to respond to ongoing shocks”. He also said long-term inflation expectations remain contained.
Dollar Strength And Policy Caution
EUR/USD fell towards 1.1620 as the US dollar strengthened and as softer Eurozone growth expectations weighed on the euro. Markets also price further European Central Bank easing later this year.
GBP/USD stayed near 1.3440 as the stronger dollar dominated, while recent UK data pointed to slower growth. Traders continue to assess the outlook for Bank of England rate cuts.
USD/JPY rose towards 158.90, near 160.00, after the US Manufacturing PMI rose to 55.3 in May. US Treasury Secretary Scott Bessent said the United States and Japan agree excessive currency volatility is undesirable.
AUD/USD traded near 0.7150 while markets watched China’s outlook and commodity demand. WTI traded near $97.60, while gold was muted near $4,542 as yields and the dollar stayed firm.
Friday data includes Germany Q1 GDP, UK April retail sales, Germany May IFO survey, Canada March retail sales, and US May Michigan sentiment and inflation expectations.
Looking Back One Year
Looking back a year, we saw the US Dollar Index pushing towards 99.20 on expectations of a cautious Federal Reserve. Now, on May 22, 2026, with the DXY hovering around 104.5, it is clear that dollar strength was the dominant trend. Given that recent CPI data shows inflation is still sticky around 2.9%, traders should consider that the big upward move in the dollar may have peaked, making long-dated put options on the dollar more attractive.
The weakness in EUR/USD and GBP/USD that we noted in May 2025 has fully materialized, with the Euro falling from 1.1620 to around 1.08 today. The bearish sentiment was correct as the European Central Bank’s inflation figures have consistently undershot the Fed’s. With the euro showing some signs of stabilization, traders might look at strategies that profit from a sideways market, such as selling strangles, while waiting for a clear catalyst.
The situation with the Japanese Yen remains tense, as the USD/JPY rate has blown past the 158.90 level seen last year, triggering interventions from Japanese authorities near the 160 mark in late 2025. Today the pair trades in a volatile range near 157, showing the lingering effects of that government action. This high volatility suggests that instead of simple directional bets, option strategies like straddles could be used to profit from large price swings in either direction.
In 2025, oil prices were elevated at $97.60 a barrel due to supply fears, but today WTI trades much lower at about $79. This reflects an easing of geopolitical tensions and consistent production increases from non-OPEC countries over the past year. With recent EIA reports showing a build in crude inventories, traders should be cautious about being long oil and could consider buying puts as a hedge against signs of slowing global economic demand.
Gold’s price has seen a significant reality check, falling from the optimistic $4,542 level seen in May 2025 to a more grounded $2,380 today. The prolonged period of higher US interest rates and a strong dollar was the primary cause of this major correction. Until the Federal Reserve begins a clear and sustained cycle of interest rate cuts, any long positions in gold carry significant risk, and selling call options on rallies could remain a viable strategy.
