Forex & Currency Watch — 2026-05-13

Market Snapshot

Top Movers

AUD/USD — Winner (+8.34% YTD, +1.89% monthly) The Australian dollar is the standout outperformer of the cycle, driven by commodity-export tailwinds and a broad risk-on environment post U.S.-China tariff pause; year-to-date gains exceed every other G10 pair.

USD/ILS — Big weekly loser (−1.00% week) The Israeli shekel has surged against the dollar (USD/ILS −8.71% YTD) as regional geopolitical risk premiums gradually ease and diplomatic channels with the U.S. remain active.

USD/BRL — Winner for EM bears (BRL +12.85% YTD) USD/BRL fell to 4.8876, extending Brazil's real's massive recovery as commodity prices and carry-trade flows remain supportive; the real is one of the strongest performing currencies of 2026.

GBP/USD — Laggard (−0.43% week) Sterling slid as political pressure on PM Starmer mounted ahead of Tuesday's UK CPI print, with investors reducing exposure ahead of the data. ·

What Moved the Tape

• Hot April CPI print — DXY, USD/JPY: The U.S. Dollar Index rallied toward 98.30 on Tuesday after the April CPI report came in hotter than expected, pushing Treasury yields sharply higher and reinforcing the view that the Federal Reserve will keep rates elevated for longer. EUR/USD dipped and USD/JPY pressed toward 157.60–157.72 on the immediate print reaction.

• U.S.-Iran diplomatic setback — safe-haven flows into USD and JPY: Dollar safe-haven demand received a separate boost as U.S.-Iran peace negotiations ran into a setback, lifting energy prices and stoking stagflationary fears for oil-importing economies. EUR/USD faced additional headwinds as rising oil prices raised concerns about Eurozone growth.

• Treasury Secretary Bessent's FX remarks — JPY and EUR/JPY: U.S. Treasury Secretary Scott Bessent stated that "excess volatility in FX markets is undesirable," a comment that strengthened the yen and pulled EUR/JPY lower from around 185.46 to the 184.93 area. The remarks reinforced BOJ rate-hike premium in the yen.

Central Bank Watch

• Federal Reserve (USD): The April CPI beat has reinforced market expectations that the Fed remains on hold. With inflation sticky above target and the Fed described as "frozen by inflation" in the current cycle, rate-cut bets for mid-2026 have been scaled back materially. Elevated Treasury yields are now the primary USD prop.

• Bank of Japan (JPY): USD/JPY bulls are testing resistance around the 157.60–157.72 area, but intervention risk from Japanese authorities is rising. BabyPips analysis describes the pair as "caught in the middle of a policy tug-of-war" between a Fed frozen by inflation and a BOJ that is increasingly serious about rate hikes. Bessent's FX volatility comments add a diplomatic overlay to yen dynamics.

• European Central Bank (EUR): The euro is range-bound and on hold, with the next directional cue likely to come from Fed signals rather than ECB action. Rising oil prices due to the U.S.-Iran impasse risk worsening Eurozone stagflationary dynamics, adding a downside risk to EUR/USD even as the pair holds above 1.17.

• Reserve Bank of New Zealand (NZD): Traders have been reducing bets on New Zealand dollar weakness according to the latest positioning data, helping NZD/USD recover to the 0.5939–0.5966 range.

Emerging Markets & Asia FX

• CNY (USD/CNY: 6.7922, −0.52% week, −2.64% YTD): The yuan continues to grind stronger against the dollar. Year-to-date the pair has fallen 2.64%, consistent with investment-bank forecasts calling for USD/CNY to break below 7.0 in 2026 as U.S. trade tensions ease and Chinese fundamentals stabilize. China's inflation data reportedly beat forecasts this session, providing modest additional CNY support. ·

• KRW (USD/KRW: 1,488.05, +0.92% day, +5.01% YoY): The Korean won is the Asian session's notable laggard today, with USD/KRW adding nearly 1% on the day. Despite ING's projection that the won has room to appreciate on a 12-month view, near-term safe-haven flows into the dollar following the U.S. CPI and Iran headlines are weighing on KRW.

• MXN (USD/MXN: 17.2309, +0.24% day, −4.38% YTD, −11.29% YoY): The Mexican peso remains one of the biggest dollar-weakening stories of the past year, down more than 11% against USD on a 12-month basis. Near-term the peso edged softer alongside other EM currencies as the CPI-driven dollar firmed, but the structural EM carry trade keeps Mexico's currency supported in the medium term.

Strategist Takes

• Dan Tobon, Head of G10 FX Strategy, Citi (paraphrased): "We are dollar bulls in a world of dollar bears right now." Tobon sees the dollar strengthening at least through Q3 2026, primarily against the euro, Canadian dollar and sterling, even as dollar headwinds from foreign investor hedging of USD exposures and concerns about Fed independence remain.

• BabyPips Premium Strategy Desk (paraphrased, May 13, 2026): On USD/JPY specifically, the desk notes the pair is "caught in the middle of a policy tug-of-war" with the Fed frozen by sticky inflation and the BOJ getting increasingly serious about rate hikes. Bulls are testing technical resistance while intervention risk from Japanese authorities lingers as a key tail risk for yen shorts.

What to Watch Next

1. UK CPI (Wednesday, May 14) — GBP/USD most sensitive. Sterling has already slid as markets position for the print; a hotter reading could revive BOE hawkishness and bounce cable, while a soft number would extend the weekly decline below 1.35.

2. U.S. Iran nuclear talks & geopolitical headlines — EUR/USD and oil-linked currencies. The U.S.-Iran diplomatic setback is an active market driver; any de-escalation would ease oil-price risk and reduce the stagflationary headwind for the euro. Escalation would be a further EUR/USD headwind and yen tailwind.

3. Fed speakers (next 1–3 sessions) — DXY and USD/JPY. After the hot CPI surprise, any Fed officials commenting on the inflation trajectory or rate-path expectations will be closely watched. Hawkish guidance would reinforce the post-CPI dollar bid; a dovish lean would compress it.

4. USD/JPY intervention threshold (~158+) — USD/JPY. With USD/JPY pressing toward 157.72 and Bessent having flagged FX volatility concerns, traders are watching the 158.00 psychological level. A clean break above it could provoke BOJ/MoF intervention rhetoric or direct action, which would be a sharp yen-positive catalyst.

Reader Action Items

1. Watch EUR/USD at 1.17: The pair is range-bound but faces dual headwinds from a hot-CPI dollar and rising oil prices threatening Eurozone stagflation. A sustained break below 1.17 would open the door toward 1.16.

2. AUD/USD momentum vs. risk sentiment: AUD remains the YTD outperformer (+8.34%) but a deterioration in the U.S.-Iran situation or a risk-off turn from Fed hawkishness could reverse gains quickly. Watch the 0.72 handle as near-term support.

3. USD/JPY intervention zone: Do not chase USD/JPY longs above 157.50–158.00 without a tight stop. Bessent's comments and BOJ rate-hike signals mean the next big move could be a rapid yen squeeze rather than a grind higher for the pair.