Forex & Currency Watch — 2026-05-25

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Market Snapshot

*EUR/USD intraday level per FXStreet; baseline grid per TradingEconomics as of May 22 close.

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Top Movers

EUR/USD — Winner (+est. ~0.2% intraday) The euro holds onto opening gains near 1.1645, driven by risk flows as US-Iran deal hopes reduce the greenback's geopolitical safe-haven premium.

USD/CHF — Loser (-0.24% daily) The Swiss franc strengthens as risk appetite eases the dollar's defensive bid; USD/CHF sits at 0.78470, the franc benefiting from both the risk backdrop and its own safe-haven qualities pivoting to the upside on calmer global nerves.

AUD/USD — Under Pressure (-0.44% daily) The Australian dollar lags despite the broad risk-on tone, sitting at 0.71183; dealers note technically the pair has reversed from recent highs, even as AUD retains a robust +10.21% year-on-year gain — the best performer in the majors grid on a 12-month basis.

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What Moved the Tape

• US-Iran Strait of Hormuz Deal Hopes (EUR/USD, DXY): The dominant force in Monday's Asian/early European session is reporting that the US and Iran are on the cusp of an agreement to reopen the Strait of Hormuz. Risk flows surged, weakening safe-haven demand for the dollar and pushing EUR/USD to ~1.1645. The DXY, sitting just below 99.25, barely budged on a net basis but the internal composition shifted notably away from geopolitical premium.

• Fed's Waller Hawkish Pivot Signal (USD/JPY, DXY): In the prior session, Fed Governor Christopher Waller explicitly stated he is "ready to axe the easing bias" and labelled rate-cut talk "crazy." That headline, crossing Reuters on May 22, anchored the dollar and helped USD/JPY climb to 159.19 — a 0.14% daily gain. Rising US Treasury yields remain the key structural support for the greenback, particularly against the yen.

• Stronger-than-Forecast Inflation Data / Fading Rate-Cut Hopes (DXY, GBP/USD, EUR/USD): FXEmpire analysis published in the past 24 hours notes that following stronger-than-expected inflation prints, the dollar advanced on fading rate-cut hopes; GBP/USD is seen defending 1.3445 and EUR/USD broke lower toward 1.158 on the daily chart — though today's Iran headline partially offset those moves.

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Central Bank Watch

• Federal Reserve (USD): Fed Governor Waller (May 22) said he is prepared to abandon the "easing bias," calling rate-cut discussions at this juncture "crazy." The market has repriced cuts sharply out of its base case. Treasury yields remain the dominant driver of the global rates landscape, providing a structural floor under the dollar. Rate-path expectations have shifted meaningfully hawkish over the past week.

• ECB (EUR): The ECB has rebuffed proposals to boost euro-denominated stablecoins as "too risky" (Reuters, May 22). No fresh policy pivot signals in the past 24 hours; EUR/USD continues to trade primarily on US rate and geopolitical inputs rather than ECB-specific catalysts. Euro gaining modest ground today on US-Iran risk-on flows rather than any ECB dovish tilt.

• Bank of Japan (JPY): USD/JPY sits at 159.19, up +0.14% on the day and +11.67% year-on-year — the widest divergence in the majors grid. The BOJ's ultra-loose stance contrasts sharply with the Fed's hawkish recalibration. FXEmpire notes that the Treasury yield surge is the primary engine of USD/JPY upside, with no new BOJ communication in the past 24 hours to alter the carry-trade dynamic.

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Emerging Markets & Asia FX

• USD/CNY — 6.7980 (-0.03% daily, -2.56% YTD): The yuan continues its gradual multi-month appreciation against the dollar, with USD/CNY down 5.21% year-on-year — among the most notable longer-term moves in EM Asia. PBOC has guided the fixing modestly, and China's reduced tariff environment post-US-China trade talks supports the yuan.

• USD/KRW — 1520.80 (+1.08% daily, +5.57% YTD): The Korean won is today's notable underperformer in Asia, weakening 1.08% against the dollar and sitting +11.36% weaker year-on-year. The move comes as risk sentiment, while broadly positive, has not fully sheltered the won from concerns about Korea-specific trade flows and global tech demand uncertainty.

• USD/MXN — 17.3270 (+0.12% daily, -3.84% YTD): The peso holds broadly steady on the day, with a modest 0.12% dollar gain. YTD the peso is still 3.84% stronger against the dollar, reflecting carry-trade demand and nearshoring-related inflows. The YoY gain of ~9.94% for the peso remains one of the strongest EM currency performances.

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Strategist Takes

FXEmpire Analysis Desk (May 24): "The Dollar is moving higher as traders bet on a hawkish Fed, with rising Treasury yields the key driver. DXY is targeting the $99.48–$99.66 range after a channel breakout, while EUR/USD is breaking lower toward $1.158 and GBP/USD is holding $1.3445 with buyer defense." The desk notes that although the US-Iran ceasefire hopes have introduced a short-term dollar headwind, the structural backdrop — sticky inflation, Fed staying higher for longer — keeps the greenback well supported on dips.

Reuters Markets/Technicals Desk (May 13, most recent available): "The dollar has surrendered almost all of the gains it made since the start of the US-Iran war as the initial flight to safety gave way to ceasefire and hopes for a peace deal, but the greenback has leveled off." The desk's technical work pointed to a dollar seeking to test recovery waters around the 99.00–99.50 area — a range that remains relevant as of today's print.

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What to Watch Next

1. US-Iran Strait of Hormuz Negotiations (Ongoing / Next 1-3 sessions) — DXY, AUD/USD, USD/CAD: Any definitive announcement of a deal or breakdown will be the single biggest near-term catalyst for dollar direction. A confirmed deal removes the remaining geopolitical risk premium in the dollar and could push DXY back toward 98.50.

2. Fed Speaker Calendar (Week of May 25-29) — USD/JPY, EUR/USD: Following Waller's hawkish comments on May 22, markets will parse any further Fed communication closely. Additional hawkish signals would reinforce the Treasury yield bid supporting USD/JPY near 159 and capping EUR/USD gains.

3. US PCE Inflation Data (Expected late May/early June) — DXY, EUR/USD: The Fed's preferred inflation gauge will be the next hard data test. A hotter-than-expected read would further cement the "no cuts in 2026" narrative and likely push DXY toward the 99.66 technical target flagged by FXEmpire analysts.

4. PBOC Monthly Fixing (Daily, week of May 26-30) — USD/CNY, CNH crosses: With USD/CNY already down 5.21% YoY, any shift in the PBOC's daily reference rate midpoint will signal whether Chinese authorities are comfortable with further yuan strength. A tighter-than-expected fixing would embolden yuan bulls and keep USD/CNY under 6.80.

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Reader Action Items

1. Watch EUR/USD at the 1.1600–1.1650 zone: The pair is caught between the hawkish Fed impulse (bearish EUR/USD) and today's US-Iran risk-on flows (bullish EUR/USD). A decisive close above 1.1650 would challenge the near-term downside scenario toward 1.158; a rejection here keeps the bearish technical picture intact.

2. USD/JPY remains a carry-trade live wire: With Waller's hawkish shock on May 22 and Treasury yields elevated, 159 is not a ceiling — 160 is in play if incoming US data stays hot. However, a surprise BOJ communication or sharp risk-off event could unwind carry positions rapidly. Keep stops wide.

3. Track the US-Iran deal headline risk for safe-haven repricing: A confirmed Strait of Hormuz agreement is the event most likely to reprice the dollar lower in the sessions ahead. AUD/USD and commodity-linked currencies (CAD, NOK) would be the primary beneficiaries, while safe-haven CHF and JPY could give back recent gains.