Forex week in review 21/2026: Fed minutes, new Fed chair

After the previous week’s surge, the dollar index finished almost flat at 99.24. Hawkish Fed minutes and Kevin Warsh’s swearing-in kept rate-hike talk alive, while sterling clawed back 0.8% and the Australian dollar slipped after a surprise jump in unemployment.

After a week in which the dollar index rose 1.41% on hot US inflation, the week of 18–22 May was a pause. The Dollar Index (DXY) closed Friday at 99.24, a whisker below the previous Friday's 99.28, according to RTTNews. That flat weekly number hides a lot of activity underneath: hawkish Fed minutes, a sharp drop in UK inflation, a slump in euro-area business surveys, a surprise rise in Australian unemployment, a swing in oil on Iran headlines and, on Friday, a new chair of the Federal Reserve.

The lesson of the week is that a currency can absorb a lot of news and go nowhere when the drivers pull in different directions. Understanding which force wins on which day is most of the job of reading the FX market.

Where the story stood on Monday

The previous week had established the main theme: the energy shock from the closure of the Strait of Hormuz was now showing up in US inflation data, and markets had started to price the chance of a Fed hike rather than cuts. See last week's recap for the details. Sterling had taken a second hit from a Labour leadership crisis, ending the previous week down 2.27% against the dollar, and USD/JPY was creeping back toward the levels where Japan intervened on 30 April.

Going into this week, the main scheduled tests were the minutes of the Fed's late-April meeting and the UK's April inflation data, both on Wednesday.

Day by day

Monday 18 May: sterling finds a floor

According to Invezz, sterling briefly fell to $1.3304, its weakest since 8 April, before recovering to trade 0.4% higher around $1.337. Prime Minister Keir Starmer told Labour staff he was "focused on the job". The Dollar Index touched 99.35 early in the day before easing to around 99.09, according to RTTNews.

Tuesday 19 May: Japan's economy beats

Japan's first-quarter GDP grew 0.5% on the quarter, ahead of a 0.4% forecast, with the previous quarter revised down to 0.2%, according to RTÉ. Stronger growth in principle gives the Bank of Japan more room to raise rates, which would support the yen. In practice the yen barely reacted. When the rate differential with the US is as wide as it was, one GDP print does not move the needle much.

Wednesday 20 May: three big events in one session

Wednesday was the busiest day of the week.

UK inflation dropped. The Office for National Statistics reported CPI inflation at 2.8% in the 12 months to April, down from 3.3% in March. Core CPI fell to 2.5% from 3.1%, and services inflation dropped to 3.2% from 4.5%. The largest downward contribution came from lower electricity and gas prices after the energy price cap fell in April, while higher motor fuel prices pushed the other way. Some of the services fall was linked to the timing of Easter affecting airfares, according to the ONS.

This is a good example of why you have to read inside an inflation number. Headline inflation fell because regulated household energy bills reset lower, even while petrol and diesel were rising because of the war. The underlying picture was mixed, not clean.

The Fed minutes were hawkish. The minutes of the 28–29 April FOMC meeting showed that three policymakers (Beth Hammack, Neel Kashkari and Lorie Logan) objected to the committee's easing bias, while Stephen Miran dissented in the opposite direction in favour of a cut. XTB described it as the widest voting split since 1992. A substantial part of the discussion suggested that if core inflation failed to cool, the next move could be a hike, and many members judged inflation risks to be skewed to the upside, partly because a rising oil futures curve was lifting near-term inflation expectations.

Remarkably, the market barely moved. XTB noted EUR/USD held near 1.162 after the release, and US equity indices kept their gains. The reason is that the April meeting took place before the hot CPI and PPI data of the previous week. Markets had already repriced toward hikes; the minutes confirmed a direction rather than revealing a new one. A data release only moves price to the extent it changes expectations, which is the central idea of our guide on how economic data moves forex.

Iran headlines swung oil. President Trump said the US and Iran were in the "final stages" of negotiations, while also warning strikes would resume if there was no deal, according to FXEmpire. WTI dropped below $100 a barrel and Brent closed near $105. Risk appetite improved: FXEmpire reported Japan's Nikkei 225 up 3.6% and South Korea's Kospi up 8.3% that day. After the US close, Nvidia reported quarterly revenue of $81.6 billion against $79.2 billion expected.

Thursday 21 May: weak PMIs and an Australian jobs shock

Euro-area business activity contracted faster. The flash euro-area composite PMI fell to 47.5 in May from 48.8, the lowest since October 2023 and below a Reuters poll that expected no change, according to RTÉ. Services fell to 46.4 from 47.6, against expectations of a small rise. A PMI below 50 indicates contraction. RTÉ also noted that the ECB had debated a hike at its April meeting and that officials had signalled they might raise rates in June, with euro-area inflation at 3% in April.

That combination, a central bank considering hikes into a contracting economy, is the definition of a stagflationary squeeze. It also explains why the euro could not rally much on ECB hike talk: markets doubted how far the ECB could go if activity was falling this quickly.

Australian unemployment jumped. Australia's unemployment rate rose to 4.5%, the highest since late 2021, against 4.3% expected, and employment fell by 18,600 against a forecast gain of 15,000, according to FXEmpire. The Aussie slipped and short-dated bond yields fell. FXEmpire reported that markets now priced about 27 basis points of RBA tightening by year-end, down from 50 a month earlier, after the RBA had already raised its cash rate by 75 basis points over its last three meetings to 4.35%.

Friday 22 May: a new Fed chair and gloomy US consumers

Kevin Warsh was sworn in as chair of the Federal Reserve at the White House, according to the ABA Banking Journal. Jerome Powell intends to remain on the Board as a governor until his term ends in 2028.

The University of Michigan's consumer sentiment index came in at 44.8 against 48.2 expected, according to VBCE, a third straight monthly decline. More important for the Fed, one-year inflation expectations rose to 4.8% from 4.5% and five-year expectations to 3.9% from 3.4%. Longer-run expectations are what central banks fear most, because once households and businesses expect higher inflation they behave in ways that make it happen.

VBCE also reported the trade-weighted dollar at its highest since 7 April, about 2% higher over two weeks, with gold and silver near two-month lows.

Pair by pair

EUR/USD: 1.1626 to 1.1603 (−0.20%)

A small move on the week, with two forces cancelling out. ECB hike talk supported the euro; a collapsing services PMI undercut it. The net result was a drift lower, consistent with a market that believed the Fed was more likely to follow through on hikes than the ECB, given how weak the euro-area economy looked.

GBP/USD: 1.3325 to 1.3430 (+0.79%)

Sterling was the strongest of the pairs tracked here, recovering about a third of the previous week's loss. That might seem odd in a week when UK inflation fell sharply, which on its own would lower expectations of Bank of England hikes. RTTNews and other wires did not point to a single catalyst. Our reading, rather than a reported cause: after a 2.27% fall in one week, positioning was stretched, and with fewer fresh political headlines some of the political risk premium came out of the price. When a move is driven by fear, a pause in the news is often enough for a partial retracement.

USD/JPY: 158.77 to 159.20 (+0.27%)

The pair kept grinding higher, but more slowly as it approached 160. That level matters because it is close to where Japan acted on 30 April. Market sources later cited by Adnkronos believed the authorities had set their line of defence around 160. Price behaviour near such levels is often hesitant, because traders know the risk of a sudden reversal is high. Our support and resistance guide explains why round numbers and remembered levels attract this kind of behaviour.

AUD/USD: 0.7151 to 0.7127 (−0.34%)

The jobs report did the damage. The Aussie had been the year's best G10 performer because the RBA was among the few central banks actively raising rates. A weak labour market reduces the chance of more hikes, and FX traders repriced quickly.

XAU/USD: 4,540.07 to 4,509.38 (−0.68%)

Gold fell for a second week, but much more slowly than the 3.71% drop of the previous week. Higher inflation expectations and hawkish Fed signals kept pressure on a non-yielding asset, while the safe-haven bid faded on hopes of an Iran deal midweek.

Reading the minutes: why dissent matters

A Fed decision is a single number. The minutes and the voting record tell you how close the decision was and which way the committee is leaning. Three regional presidents objecting to an easing bias is significant because it signals that a bloc was already arguing for a neutral or tightening stance before the latest inflation data.

For FX, the important point is that central bank communication shapes expectations for the path of rates, not just the next decision. Currencies trade on that expected path. If you want the background, our guide on central banks and interest rates covers forward guidance, dot plots and how differentials between central banks drive major pairs.

The change of leadership adds to the uncertainty. A new chair can change the tone of communication quickly, and markets often hold back on big positions until they have heard the new chair speak at a press conference.

Risk in a "flat" week

A flat weekly close does not mean a quiet week. EUR/USD and GBP/USD both moved through multi-day swings, and USD/JPY hovered near an intervention zone. Two practical points follow.

First, wide intraday swings around data releases can trigger stops even when the weekly candle looks small. If your stop sits inside the normal daily range, you are likely to be stopped out by noise. Our guide on where to put a stop-loss covers volatility-based placement.

Second, spreads widen around high-impact releases such as CPI, PMIs and labour data. If you trade at 9:30am London time on a UK CPI morning, the cost of entry is higher than usual and the risk of slippage is greater.

Worked example (illustrative): a trader sells one mini lot (10,000 units) of AUD/USD at 0.7150 just before the Australian jobs release, with a 20-pip stop. A mini lot is worth about $1 per pip, so the planned risk is $20. If the spread widens from 1 pip to 5 pips at the release and the order fills 3 pips worse than expected, the real entry cost rises by several dollars before the market has moved at all. On small accounts, these frictions are a large share of the risk budget. Remember that most retail CFD accounts lose money, and leverage magnifies losses as well as gains. Our guide on why most retail CFD traders lose looks at the evidence.

What this week teaches

Old news does not move markets. The hawkish Fed minutes described a meeting held before the latest inflation data. The market had already moved, so the reaction was muted.
Look inside the inflation number. UK CPI fell because regulated energy bills reset lower, while fuel prices rose. Headline and underlying trends can point different ways.
Hikes into weakness are hard to sustain. The ECB considered tightening while the PMI contracted. Currencies tend to discount hike talk when growth is visibly falling.
A flat week can still be a risky week. Wide intraday ranges around releases test stop placement and execution quality.
Watch inflation expectations, not just inflation. The rise in Michigan's five-year expectations to 3.9% is the kind of data point that keeps central banks hawkish.

Scheduled next week (25–29 May)

Dates are listed so you know when volatility is likely; they are not a forecast of direction. Read the week's outcome in the following recap.

Monday 25 May: US markets closed for Memorial Day; UK markets closed for the spring bank holiday. Expect thinner liquidity.
Tuesday 26 May: US house price index and Conference Board consumer confidence.
Wednesday 27 May: Australia's April monthly CPI.
Thursday 28 May: US April PCE and core PCE inflation, durable goods orders and the second estimate of first-quarter GDP.
Friday 29 May: Canada first-quarter GDP; Chicago PMI; Japan's Ministry of Finance publishes its monthly intervention total.
All week: US–Iran negotiations, including reports of a possible ceasefire extension; the status of the Strait of Hormuz.

Sources

Not investment advice. This is general information and education, written without knowledge of your circumstances. It is not a recommendation to buy or sell any instrument. Past performance is not a reliable indicator of future results. Trading leveraged products carries a high risk of losing money. Risk warning

Forex week in review 21/2026: hawkish Fed minutes, a new Fed chair and a pause for breath