Dollar softens as Fed expectations and oil remain in focus: Currency Recap

[Fragment of a 100 dollar bill for design purposes. Money of the United States of America.]
Sergii Zyskо

The U.S. dollar edged lower, as investors assessed geopolitical developments around the Iran conflict and shifting expectations for Federal Reserve policy following a strong weekly advance.

The dollar index (DXY [https://seekingalpha.com/symbol/DXY]), which measures the greenback against a basket of major currencies, was last down 0.34% at $98.95, though it remains up about 0.79% for the year to date.

DOLLAR WEEKLY MOVES AND KEY DRIVERS:

Over the past week, the index rose 1.19%, with gains driven by a sharp rise in U.S. Treasury yields, persistent inflation concerns amid higher oil prices linked to Iran tensions, and reduced expectations for near-term Federal Reserve rate cuts.

[Chart]
Graphical Representation (SeekingAlpha)

Early in the week, the dollar strengthened as escalating Iran-related tensions pushed oil [https://www.bbc.com/news/articles/czx2ne2ryppo] prices higher, raising concerns about inflation and supporting demand for the greenback.

In subsequent sessions, the dollar extended gains after stronger-than-expected [https://www.reuters.com/world/asia-pacific/dollar-near-one-week-high-hot-us-inflation-fans-fed-hike-bets-peace-talks-stall-2026-05-13/] U.S. inflation data and resilient economic indicators led investors to scale back expectations for near-term Federal Reserve rate cuts [https://www.bloomberg.com/news/articles/2026-05-12/gold-holds-decline-as-us-inflation-jump-lowers-rate-cut-odds].

The greenback continued to advance midweek, supported by hawkish signals from Federal Reserve officials and a steady climb [https://www.reuters.com/world/asia-pacific/dollar-poised-largest-weekly-rise-two-months-fed-hike-bets-increase-2026-05-15/] in U.S. Treasury yields, reinforcing the higher-for-longer rate narrative.

Toward the end of the week, the dollar remained supported, as Treasury yields continued to move higher [https://www.reuters.com/business/gold-slips-1-12-month-low-middle-east-tensions-lift-oil-cloud-rate-outlook-2026-05-18/] amid persistent inflation concerns.

In the latest session, however, it edged lower, as markets weighed [https://www.reuters.com/world/asia-pacific/dollar-firms-oil-climbs-bond-rout-saps-risk-appetite-2026-05-18/] prospects of a potential de-escalation in the Iran conflict.

U.S. Treasury yields moved higher over the week, with the 10-year yield (US10Y [https://seekingalpha.com/symbol/US10Y]) rising 17 basis points to 4.59%, while the 2-year yield (US2Y [https://seekingalpha.com/symbol/US2Y]) rose 9 basis points to 4.06%.

CURRENCY HIGHLIGHTS:

Major currency movements (May 11 to May 17)

Euro (EUR:USD [https://seekingalpha.com/symbol/EUR:USD])

-1.14%

Pound Sterling (GBP:USD [https://seekingalpha.com/symbol/GBP:USD])

-1.99%

Japanese Yen (JPY:USD [https://seekingalpha.com/symbol/JPY:USD])

-0.79%

Chinese Yuan (CNY:USD [https://seekingalpha.com/symbol/CNY:USD])

-0.38%

Swiss Franc (CHF:USD [https://seekingalpha.com/symbol/CHF:USD])

-0.97%

Australian Dollar (AUD:USD [https://seekingalpha.com/symbol/AUD:USD])

-1.31%

Canadian Dollar (CAD:USD [https://seekingalpha.com/symbol/CAD:USD])

-0.48%

Click to enlarge
The British pound (GBP:USD [https://seekingalpha.com/symbol/GBP:USD]) was last up 0.81%, rebounding after a volatile week. Earlier pressure stemmed from UK political uncertainty and rising bond yields, alongside broader risk aversion linked to Middle East tensions, while stronger domestic growth helped support a late recovery.

The Australian dollar (AUD:USD [https://seekingalpha.com/symbol/AUD:USD]) was last up 0.27%, recovering modestly after broader weakness earlier in the week. The currency tracked shifts in global risk sentiment, with early pressure giving way to a mild rebound as market conditions stabilized.

The euro (EUR:USD [https://seekingalpha.com/symbol/EUR:USD]) was last up 0.27%, edging higher after a mixed week for regional markets.

The currency moved in line with fluctuating sentiment, as geopolitical tensions and rising yields weighed on European equities, while steady economic expectations and improved risk tone supported a modest rebound.

MORE ON US DOLLAR INDEX

* Takaichi Endorses Supplemental Budget, Trump Escalates Rhetoric Toward Iran, And Markets Spooked [https://seekingalpha.com/article/4906000-takaichi-endorses-supplemental-budget-trump-escalates-rhetoric-toward-iran-markets-spooked]
* Macro Insights: $200 Oil Shock Looms Amidst Bubble Warning--How To Position Your Portfolio [https://seekingalpha.com/article/4905624-macro-insights-200-oil-shock-looms-amidst-bubble-warninghow-to-position-your-portfolio]
* Week Ahead: Rising U.S. Rates Underpin Greenback [https://seekingalpha.com/article/4905644-week-ahead-rising-us-rates-underpin-greenback]
* Europe equities retreat as Iran tensions fuel inflation worries [https://seekingalpha.com/news/4594257-europe-equities-retreat-as-iran-tensions-fuel-inflation-worries]
* U.S. federal debt hits 100% of GDP, but Washington keeps spending [https://seekingalpha.com/news/4594185-u-s-federal-debt-hits-100-percent-of-gdp-but-washington-keeps-spending]