The month of May will likely extend the USD’s downward correction in April, which followed its two-month rise in February and March.
On monetary policy, Jerome Powell’s decision to remain as a Fed Governor after stepping down as Fed Chair on May 15 creates an awkward situation for his successor, Kevin Warsh. Chairing his first FOMC meeting in June, Warsh must balance President Donald Trump’s demand for a rate cut with the Board of Governors’ dissent against a dovish pivot amid expectations of a short-term rise in inflation. 
Unlike the Fed, the European Central Bank and the Bank of England continued to warn against second-round inflation effects, which should provide a structural floor for the EUR and GBP against a struggling USD. The market continues to price in an extended Fed pause for the rest of 2026 despite rate hikes from other major central banks. On May 5, the Reserve Bank of Australia is set to deliver its third consecutive rate hike to 4.35%, extending AUD’s lead as the highest-yielding G10 currency and 2026’s best-performing currency.
The USD’s war-related haven appeal has waned. By utilizing the April ceasefire as a legal reset to bypass the 60-day War Powers Resolution deadline, the White House has uncoupled its strategy from immediate Congressional oversight. Treasury Secretary Scott Bessent’s "Economic Fury" initiative also suggested a transition from a political war of attrition towards economic encirclement as the primary theatre of engagement.
Additionally, the UAE’s exit from OPEC and the OPEC+ Alliance on May 1 fundamentally weakened the cartel’s ability to enforce price floors. Brent crude’s knee-jerk spike to a four-year high of $126.41 per barrel on April 30 reversed quickly to $108.17 on May 1. The diminishing risk of oil prices rising above $120 should also help stabilize record-low currencies such as the INR, IDR, and PHP.
A softening USD provided the opening for the Japanese authorities to pull USD/JPY out of its two-month consolidation range of 158–160, driving it down to 156.60 by the end of April. Amid unconfirmed FX interventions to rein in the JPY’s weakness, Finance Minister Satsuki Katayama warned traders to keep their smartphones with them over Japan’s Golden Week holiday (April 29 to May 6). The Bank of Japan also helped by maintaining the market’s momentum for a 25-bps rate hike to 1% at the June 16 meeting.
The Trump-Xi Summit on May 14-15 in Beijing, China, will be significant for global currencies. The CNY’s appreciation, driven by the US-China tariff truces, has helped to offset the JPY’s post-Liberation Day weakness, an important factor preventing a pan-Asian currency sell-off. China has made the reopening of the Strait of Hormuz and the preservation of the Iran ceasefire as urgent priorities of the summit. President Trump launched “Project Freedom,” which seeks to ease the US naval blockade by providing US escorts for neutral commercial vessels. Global markets are monitoring the summit as a potential prelude to a diplomatic “off-ramp” involving China as mediator.
Quote of the Day
“Don't worry when you are not recognized, but strive to be worthy of recognition.”
Abraham Lincoln
May 4 in history
The 1st Annual Grammy Awards were held in 1959, honouring the best music of 1958 across 28 categories.
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