The below key drivers are likely to impact investor risk sentiment and FX markets in May:
- The ongoing US/Iran conflict’s impact on oil prices continues to drive demand for the US dollar while increasing pressure on inflation-sensitive currencies.
- Markets are focused on central bank outlooks and interest rate expectations as policies diverge for countries looking to control inflation.
EUR | Euro
The euro has been volatile as tensions in the Middle East pushed oil prices higher, but easing fears helped the euro recover. Rising inflation could also pressure the ECB to raise interest rates.
The euro has seen strong volatility over recent weeks as the conflict in the Middle East drove oil prices sharply higher and boosted demand for the US dollar as a safe haven.
EURUSD began April around US$1.15 as the impact on rising energy costs hit the pair. As the month progressed, sentiment improved as US President Donald Trump signalled potential US and Iran talks to ease the conflict, and by extension, stabilise oil markets. As the price of oil has fallen, EURUSD has pushed higher and with the pair recently trading back up near US$1.18. Should we hopefully see an end to the conflict sooner rather than later then a move to US$1.20 could be on the cards however we have seen many deadlines come and go and the standoff in the Strait of Hormuz where 20% of the world’s oil and gas pass still remains.
Latest data showed that inflation in the Eurozone had pushed up to 3%, and should this continue to be forced higher by events in the Middle East, then the European Central Bank may be forced into raising rates as soon its June policy decision.
Looking ahead, the euro is likely to remain heavily influenced by the US/Iran conflict, and ongoing tensions in the Middle East. Investors will likely be closely monitoring economic data like the Eurozone Purchasing Managers Index (PMI) and US Retail sales for any clues to economic health and central bank direction.
Expected ranges:
- EURUSD 1.1510–1.1880
- EURGBP 0.8610–0.8780
GBP | Sterling
The value of the pound has primarily been impacted by events in the Middle East, which has caused some big swings in GBPUSD throughout April and May.
In early April, GBPUSD fell to around US$1.3190 as concerns grew that surging oil and gas prices could weigh heavily on the UK economy and push inflation higher. Despite the ongoing conflict, there has been optimism that it could be nearing a diplomatic end, helping GBPUSD to rally, beginning May back above US$1.36.
With the rising price of energy, the Bank of England may look to hike interest rates later in the year, should inflation rise again. These expectations have added support to the pound over recent weeks along with some better-than-expected UK data including strong growth data and Services sector Purchasing Manager’s Index (PMI).
Looking ahead, the Middle Eastern conflict will likely be a driver of the pound’s value. Additionally, growing uncertainty over Keir Starmer’s position as Prime Minister could also lead to some pound softness. Labour’s poor results at recent local elections and ongoing criticism about the appointment of Peter Mandelson as US Ambassador has led to growing calls for the Prime Minister to resign. Should the Prime Minister’s position become untenable, it could soften the GBPUSD back down towards US$1.30.
Expected ranges:
- GBPUSD 1.3385–1.3800
- GBPEUR 1.1390–1.1615
AUD | Australian dollar
The AUD gained momentum as higher Australian interest rates, improving global conditions, and growing investor confidence helped push the currency into a stronger upward trend against the US dollar.
April saw AUDUSD trade closer to the US$0.68-US$0.69 range, and trended consistently higher through the month, to break above the important psychologically level of US$0.70 by month-end. In early May, the AUD extended toward the US$0.72–US$0.7240 range. The AUD strengthened by roughly 3.5–4.0% in April, marking one of its more constructive periods in recent quarters.
A key domestic driver behind the move has been persistent inflation pressures in Australia, which have led the Reserve Bank of Australia (RBA) to maintain a tougher stance on inflation by keeping interest rates higher for longer. With inflation remaining at or above the top end of the RBA’s 2–3% target band, policymakers have signalled a willingness to maintain tighter monetary settings, including recent rate hikes that have reinforced yield support for the currency.
This has contrasted with a more cautious outlook for US policy, helping to narrow interest rate differentials and underpin demand for the AUD. In addition, improving global risk sentiment and stabilising geopolitical conditions have further supported pro- cyclical currencies like the Australian dollar. Technical momentum also contributed, with the pair breaking key resistance levels near US$0.7180 and pushing toward yearly highs, signalling sustained bullish positioning.
Expected ranges:
- AUDUSD 0.7110–0.7278
- AUDEUR 0.6087–0.6179
- AUDGBP 0.52758–0.53376
- AUDNZD 1.2114–1.2239
NZD New Zealand dollar
The NZD has slowly strengthened against the US dollar, helped by sticky inflation at home, expectations of higher interest rates, and a calmer global backdrop supporting investor confidence.
Over the past month, the New Zealand dollar has recorded a modest but steady appreciation against the US dollar, supported by improving domestic fundamentals and a more constructive global backdrop.
Starting April near the US$0.57–US$0.58 range, NZDUSD gradually trended higher through the month, lifting toward the US$0.59–US$0.5930 region by early May. On a month-on-month basis, the NZD strengthened by roughly 3.3–3.9%, reflecting a meaningful recovery following prior volatility.
A key catalyst behind the upward move was stronger -than- expected New Zealand inflation data, with first quarter Consumer Price Index (CPI) printing at 3.1% y/y above market expectations, reinforcing the view that price pressures remain persistent. This supported expectations that the Reserve Bank of New Zealand may need to maintain a tighter policy stance or delay rate cuts, underpinning demand for the currency. Markets have begun to price in the possibility of future policy tightening or at least a slower easing cycle, which has improved the NZD’s yield appeal relative to earlier expectations.
External factors also played an important role, with stabilising global risk sentiment, and a partial recovery in risk assets during April helped to encourage flows into pro cyclical currencies like the NZD. That said, gains were not without interruptions, as bouts of US dollar strength tied to geopolitical uncertainty and safe haven demand periodically capped upside momentum. Technically, NZD/USD approached key resistance levels around 0.5920–0.5940, signalling improving bullish momentum but also highlighting areas where the rally could face near term consolidation.
Expected ranges:
- NZDUSD 0.5821–0.5991
- NZDEUR 0.4987–0.5085
- NZDGBP 0.4320–0.4394
- NZDAUD 0.8171–0.8255
USD | United States dollar
The US dollar softened as inflation eased and the job market slowed, but ongoing global uncertainty and cautious signals from the Federal Reserve continued to support demand for the currency.
The US dollar has traded with a softer tone over the past week as investors reassessed the Federal Reserve’s policy path following a run of more benign inflation data and signs that labour market momentum is gradually cooling.
Recent Consumer Price Index (CPI) and Producer Price Index (PPI) figures suggested underlying price pressures are easing, while softer payroll revisions and weaker job openings data reinforced the narrative that restrictive monetary policy is beginning to weigh on growth. Federal Reserve officials have maintained a cautious stance, however, emphasising that inflation remains above target and that rate cuts will likely depend on sustained evidence of disinflation. Chair Jerome Powell has continued to signal patience rather than urgency, which has prevented markets from aggressively pricing deep easing. Treasury yields have drifted lower as a result, removing some of the dollar’s rate advantage. At the same time, geopolitical uncertainty and weaker global growth continue to provide periodic safe -haven demand.
Looking ahead, markets are expected to monitor upcoming inflation, retail sales and labour market releases for confirmation that the Fed can begin easing later this year. Until then, the dollar may remain rangebound, caught between declining yields and lingering demand for defensive assets.
Expected ranges:
- DXY 97.625–99.093
JPY | Japanese yen
The Japanese yen stayed volatile as policy differences, global tensions, and energy costs weighed on it. Brief government action and warnings sparked a sharp rebound, but pressure on the yen remains.
The Japanese yen had a volatile April, trading around the 160 level as monetary policy divergence and intervention risks dominated sentiment.
Ongoing US/Iran conflict and continuing geopolitical tensions in the Middle East, added to oil price swings and bouts of US dollar strength, while Japan’s heavy reliance on energy imports kept underlying pressure on the currency. Meanwhile, Bank of Japan (BoJ) Governor, Kazuo Ueda, maintained a cautious stance despite expectations of a potential rate hike. Toward month end, signs of possible government intervention and verbal warning from officials drove a sharp rally for the yen. It was the yen’s biggest rally in three years, briefly lifting it from a low of 155.57, not seen for almost four-decades, before stabilising in the 156.50 range.
Japan’s economic data sent mixed signals. While trade remained in surplus on strong exports, services activity weakened and labour data softened slightly. Traders remain on alert as officials continue to signal readiness to act, pointing to a more managed approach to the yen.
Ongoing policy divergence between the BoJ and the Federal Reserve is likely to sustain volatility, suggesting that lasting strength may require repeated intervention. Without a more decisive shift in policy or relief from external pressures, the yen is likely to remain under pressure, with intervention serving as a temporary buffer rather than a lasting solution.
Expected ranges:
- USDJPY 150—165
CAD | Canadian dollar
The Canadian dollar strengthened as solid jobs data, stubborn inflation, and stronger oil prices supported the economy, while investors reassessed how quickly Canada’s central bank may cut interest rates.
The Canadian dollar has strengthened modestly over the past week as domestic economic data challenged expectations that the Bank of Canada may move aggressively toward further rate cuts.
Stronger than expected employment figures highlighted resilience in the labour market, while core inflation measures remain sticky enough to justify a cautious policy stance. Although the Bank of Canada has already begun signalling that inflation is moving in the right direction, policymakers remain wary of easing too quickly, particularly as wage growth remains elevated and housing-related inflation pressures persist. Oil prices have also provided support for the CAD, with stronger crude markets improving Canada’s terms of trade and boosting sentiment toward the currency. Markets are now reassessing how quickly the Bank of Canada can diverge from the Federal Reserve, especially if US policymakers delay their own easing cycle.
The broader outlook for the Canadian dollar will likely depend on domestic inflation trends, energy prices and relative central bank policy expectations. If Canadian economic data remains resilient and the Federal Reserve turns more dovish, the CAD could continue to outperform against the US dollar in the near term.
Expected ranges:
- CADUSD 0.7294–0.7380
SGD | Singapore dollar
The Singapore dollar stayed steady as tighter local policy and strong exports helped support it, while global uncertainty and energy concerns kept the US dollar strong and limited further gains.
USDSGD traded in a fairly contained 1.27 to 1.28 range over the past month, with the SGD holding in the upper half of the MAS appreciating policy band. The local resilience reflects the Monetary Authority of Singapore (MAS) April policy tightening and resilient AI-linked manufacturing flows, while persistent USD safe- haven demand largely due to Middle East tensions has kept the pair from a sharper drop.
On April 14, the MAS slightly steepened the slope of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) policy band, which was its first tightening since 2022. This move cited higher imported energy and goods costs tied to disruptions due to the closure of the Strait of Hormuz. Core Inflation rose to 1.7% y/y, up from 1.4% in February. The MAS raised its 2026 forecast for both core and headline inflation to 1.5%–2.5% (up from the previous range of 1%–2%). Singapore’s economy grew 4.6% in Q1 2026 (advance estimates), a slowdown from 5.7% in the previous quarter.
For the month ahead, the MAS tightening bias should keep the SGD broadly supported, particularly given that the next policy review isn’t until July. That said, the safe- haven bid for the dollar may cap SGD gains if the Strait of Hormuz disruptions persist. Energy prices remain the wildcard, as a lasting easing of Middle East tensions would likely give the SGD more room to appreciate.
Expected range:
- USDSGD 1.2650–1.2900
HKD | Hong Kong dollar
The Hong Kong dollar stayed under pressure near the weak end of its range, driven by interest rate differences and investor flows into the US dollar, despite a stronger local economy.
USDHKD spent most of the past month pinned near the weak side of its convertibility band, drifting in a tight 7.83 to 7.84 corridor through April and early May. The persistent grind toward the weaker end of the band largely reflects carry trade flows where traders borrow HKD to rotate into higher yielding USD assets. This dynamic has lingered as local liquidity keeps Hong Kong Inter-bank Offered Rate (HIBOR) suppressed compared to US rates. Additionally, safe haven dollar demand stemming from the Middle East conflict has reinforced the move.
Locally, the Hong Kong economy showed resilience. Q1 GDP grew 5.9% y/y, up from 4.0% in Q4 2025. The aggregate balance has held steady near HK$50 billion, while 1-month HIBOR has drifted around 2.48% which remains significantly below the 30-day SOFR near 3.6%. This negative HIBOR to USD spread continues to support HKD funded carry trades.
Heading into the next month, USDHKD is likely to keep hugging the weaker half of the band as carry trades and elevated oil prices weigh on the local unit. The June FOMC meeting is the next major checkpoint, as markets are currently pricing in fewer rate cuts for the remainder of the year. Any escalation around the Strait of Hormuz could amplify safe- haven dollar demand, while credible deescalation may offer relief. The HKMA is expected to stay sidelined unless the weak side convertibility undertaking is tested at 7.85.
Expected range:
- USDHKD 7.8250-7.8500
Impact of Strait of Hormuz on central bank decisions. Read the article.
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