The US Dollar Index (DXY) fell to a two-week low near 98.00 on Friday, extending losses from the prior day. Focus next week includes US-Iran negotiations via Pakistan and US jobs data ending with the Nonfarm Payrolls report.
Friday’s calendar was quiet due to Labour Day closures, but the US ISM Manufacturing PMI was 52.7 versus 53 expected. Major central banks maintained a hawkish stance as inflation pressures remained elevated.
Market Focus Shifts Into Key Data
Iran sent a new negotiating proposal to Pakistan, which is mediating talks with the United States, though details were not disclosed. Iran’s Foreign Minister held calls with counterparts in Saudi Arabia, Qatar, Turkey, Iraq, and Azerbaijan.
EUR/USD rose near 1.1780 after the ECB kept rates unchanged, while the US announced EU car and truck tariffs would rise to 25% from 15%. GBP/USD moved up to about 1.3630 as the US Dollar weakened.
USD/JPY steadied after a drop from 160.00 to 156.60 following Japan’s intervention. Tokyo CPI ex Fresh Food was 1.9% versus 2.3% prior, and headline CPI was 1.5% versus 1.4%.
AUD/USD edged towards 0.7220 before Tuesday’s RBA decision, with Australia’s PPI at 3% versus 3.5%. Gold was near $4,630 and WTI fell towards $98.50 per barrel.
Key events run May 4–8, including multiple ECB and Fed speeches, the RBA decision, US ISM Services, JOLTS, ADP, jobless claims, and the US NFP report. Oil inventory updates from API and EIA often align within 1% about 75% of the time.
May 2026 Market Backdrop
As we head into May 2026, the market landscape looks quite different from this time last year. We are watching the US Dollar Index, which is now holding strong near 104.50, a significant change from the weak 98.00 level we saw in May 2025. This strength comes as the Federal Reserve appears to be holding firm on rates, with the market now pricing in fewer cuts than previously expected.
The focus on US-Iran peace talks that dominated last year has faded, as negotiations stalled late in 2025, leading to renewed tensions in the Strait of Hormuz. Consequently, WTI crude oil is trading near $105 per barrel, a stark contrast to the dip below $99 we saw when a peace deal seemed possible last year. Derivative traders should be positioned for continued volatility in energy markets, as any escalation could cause sharp price spikes.
Looking at currencies, the EUR/USD is trading near 1.0720, pressured by the strong dollar and lingering economic concerns in the Eurozone. This is a world away from the rally toward 1.1780 we witnessed in 2025, which was also clouded by then-President Trump’s tariff threats on EU cars. The heavy schedule of ECB speakers next week will be critical for gauging any change in the central bank’s tone.
Similarly, the GBP/USD has pulled back to the 1.2550 area, reflecting broad dollar strength. The optimism that lifted the pair above 1.3600 last year on hopes of a global risk-on mood has clearly dissipated. Traders should monitor the upcoming US Nonfarm Payrolls report, as a strong number could reinforce the dollar’s dominance.
The situation with the Japanese Yen requires careful attention, as USD/JPY is once again testing the 158.00 level. We remember the sharp intervention from the Japanese government that pushed the pair down from 160.00 around this time in 2025. Options traders should be wary of another sudden move, as verbal warnings from officials have been increasing in recent weeks.
Gold is currently trading around $4,150, having come down from the highs near $4,630 we saw last year when inflation fears were at their peak. With April’s CPI data showing inflation has cooled to 2.8%, the appeal of non-yielding gold has diminished slightly. The upcoming streak of US employment data will be key in determining if this trend continues.
