The US Dollar remains under pressure, weighed down by a sharp retreat in crude oil prices and a broad-based easing in US Treasury yields. The DXY Index is currently testing a critical mid-May consolidation range of 98.9–99.5; a clean break below this structural floor is highly likely to accelerate downside momentum toward the next major technical support level near 97.6.
Crude oil prices continued to decline, falling farther below USD 100 per barrel. Brent crude declined 9.5% to USD 93.70 this week, while WTI fell by 8.6% to $88.33. US Treasury Secretary Scott Bessent expects oil prices to be lower than pre-conflict levels. Brent and WTI were $72.50 and $67 before Operation Epic Fury started on February 28. The oil market will be very well supplied, with almost 2,000 ships waiting to come out of the Gulf. Bessent warned that there could be no deal with Iran without opening the Strait of Hormuz, Iran turning over its enriched uranium, and Iran’s commitment not to pursue a nuclear weapon. Yet, global financial markets view this aggressive energy diplomacy as an effort by the Trump administration to defuse the oil shock and pivot the Fed towards a lower interest rate regime.
The US Treasury 10Y yield eased by 11 bps in the first four days of this week to 4.447%, down significantly from its 4.685% peak on May 19. US PCE inflation decelerated from 0.7% MoM in March to 0.4% in April, while Core PCE inflation slowed to 0.3% to 0.2%. In YoY terms, headline inflation rose to 3.8% from 3.5%, fuelling concerns among some Fed members that the 3.50-3.75% real Fed Funds Rate was below its neutral zone. Core inflation edged higher to 3.3% YoY from 3.3%, well above the 2% target. However, Bessent expects US disinflation to return, driven by lower oil prices. But newly sworn-in Fed Chair Kevin Warsh will still face his first true test at managing a divided Fed at the June 16-17 FOMC. The committee voted 8-4 to keep the Fed Funds Rate unchanged at the April meeting, with one member favouring a 25-bps cut and three members objecting to maintaining the easing bias language. Against this background, it was not surprising that ECB President Christine Lagarde believed the Fed’s independence was still at risk.
While the Fed debates internal structural reforms, other major central banks are playing a more straightforward defensive game. Even if headline energy prices cool, the secondary damage to global logistics from the months-long closure of Hormuz has started to filter into intermediate goods. The markets have the strongest bets for the European Central Bank, the Bank of Japan, and the Reserve Bank of New Zealand to hike at their next meetings. A DXY Index below 98 could send EUR/USD back above 1.18. Investors may rotate from the AUD to the NZD following the RBNZ’s warning that it may emulate the RBA’s multiple rate hikes to address inflation. Markets still need more convincing about a lower USD/JPY, though they are mindful of intervention risks around the 160 level.
Quote of the Day
“It is not the mountain we conquer but ourselves.”
Edmund Hillary
May 29 in history
In 1953, Edmund Hillary and Tenzing Norgay became the first climbers to reach the summit of Mount Everest. 
Topic
GENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates, Digital Assets or Commodities)[1]
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
[#for Distribution in Singapore] This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
[1] This disclaimer may not apply if the applicable assets fall within the definition of 'financial instruments' that are set out in Article 2(1) EU MAR (e.g. financial instruments that are traded on a regulated market, MTF or OTF, etc.). Section C of Annex I of MiFID2 specifies these 'financial instruments'.