Forex week in review 22/2026: ceasefire headlines whipsaw oil and the dollar

The week of 25–29 May was short on scheduled drama and long on headlines. US and UK markets were closed on Monday for Memorial Day and the spring bank holiday, liquidity was thin, and the Middle East news flow swung from renewed US strikes on Iran early in the week to reports of a 60-day ceasefire extension late in the week. Oil fell about 8%, and the dollar gave back a small part of its May gains.

The Dollar Index (DXY) closed at 98.91, down 0.33% from 99.24, according to RTTNews. It reached a weekly high of 99.54 on Thursday before reversing to a low of 98.75 on Friday. That Thursday reversal is the key moment of the week, and it is a good case study in how headline risk works.

Where the story stood on Monday

Over the previous two weeks, the market had built a clear narrative: the Hormuz closure was pushing up energy prices, US inflation was running hot, and the Fed might have to hike. That narrative supported the dollar, as covered in our recaps of 11–15 May and 18–22 May. Kevin Warsh had just been sworn in as Fed chair.

The weakness in that narrative was obvious: it depended on the war continuing. Any credible path to reopening the Strait would lower oil, lower inflation expectations and remove part of the reason for Fed hikes. This week tested that dependency.

Day by day

Weekend and Monday 25 May: deal reports, then strikes

Over the Memorial Day weekend, reports pointed to an emerging deal that would extend the ceasefire by 60 days, let ships move freely through the Strait of Hormuz and lift the US naval blockade of Iranian ports, with nuclear issues, sanctions and frozen assets to be negotiated during that window, according to Fortune. Talks had not yet begun.

Oil reacted immediately. Brent fell 7% on Monday, according to Reuters via Kitco, and US crude futures were down 5.5% at $91.32 by Monday evening New York time, according to Fortune. The Dollar Index fell 0.3% on the day.

Then the news turned. US Central Command said it had carried out "self-defence strikes" in southern Iran against missile launch sites and boats it said were trying to lay mines, while stating that the ceasefire was not over, according to Fortune. USD/JPY made its weekly low on Monday at 158.76.

Tuesday 26 May: the dollar firms on renewed hostilities

Iran said the US had violated the ceasefire. Secretary of State Marco Rubio said negotiating a deal could "take a few days". According to Reuters via Kitco, the Dollar Index rose 0.135% to 99.15, EUR/USD slipped to about 1.1627, sterling fell 0.3% to about $1.3465 and the yen weakened to 159.24 per dollar. Brent rebounded 3.89% to $98.87.

The pattern is worth noticing: on the day of renewed hostilities, the dollar rose and oil rose. When de-escalation hopes grew, both fell. For most of May the dollar has traded as a proxy for the war's inflation and safe-haven effects.

Wednesday 27 May: Australian inflation cools

The Australian Bureau of Statistics reported annual CPI inflation of 4.2% in April, down from 4.6% in March. Automotive fuel prices fell 7.0% over the month, partly because of the halving of the fuel excise on 1 April. The trimmed mean, the RBA's preferred underlying measure, edged up to 3.4% from 3.3%.

This was the second piece of soft-ish Australian data in two weeks after the jump in unemployment, and RTTNews noted that markets lowered their expectations for further RBA hikes. Gold kept sliding, and by Thursday it had touched a two-month low, according to ATFX.

Thursday 28 May: PCE, a reversal, and the ceasefire report

Thursday was the dollar's high-water mark for the week. The Dollar Index made its weekly high of 99.54, USD/JPY hit 159.67, and EUR/USD, GBP/USD and AUD/USD all made their weekly lows, according to RTTNews.

The US released April personal consumption expenditures (PCE) data. Headline PCE inflation rose to 3.8% year on year from 3.5%, the largest increase since May 2023 according to ATFX. Core PCE rose to 3.3% from 3.2%, in line with expectations. On the month, headline PCE rose 0.4% after 0.7% in March and core rose 0.2% after 0.3%, according to Reuters via the New Straits Times. First-quarter GDP was revised lower.

Then came the headline that turned the day. Reuters reported, citing four sources and following an initial report by Axios, that the US and Iran had agreed to extend the ceasefire by 60 days and allow traffic through the Strait while negotiators addressed Iran's nuclear programme. The dollar fell against the majors. Reuters noted that several similar reports during the three-month conflict had not ended the war. All three main US stock indices closed at record highs, according to ATFX, and the Nasdaq Composite closed above 30,000 for the first time. Spot gold rebounded more than 1%.

Friday 29 May: the dollar holds its losses

The dollar stayed heavy into the weekend. Trading Economics described the Dollar Index as hovering around 99 and noted that President Trump had not yet approved the proposed terms. The Dollar Index made its weekly low of 98.75 and EUR/USD its weekly high of 1.1687, according to RTTNews.

In Tokyo, Japan's Finance Ministry published its monthly intervention figure. According to Adnkronos, it spent ¥11,734.9 billion between 28 April and 27 May, a record for a monthly period and the first intervention since July 2024. Amounts for each individual day were expected to be published in August.

Reuters reported that the Australian dollar was up 7.35% year to date at that point, the top G10 performer against the dollar in 2026, and that the New Zealand dollar had gained after the Reserve Bank of New Zealand signalled a more hawkish stance.

Pair by pair

EUR/USD: 1.1603 to 1.1660 (+0.49%)

The euro benefited from two things: a softer dollar on ceasefire hopes and lower oil, and market expectations of an ECB hike in June, which RTTNews cited as support. The range was 1.1586 (Thursday) to 1.1687 (Friday). Lower oil is especially helpful for the euro area, which imports most of its energy: every dollar off the oil price improves its trade balance.

GBP/USD: 1.3430 to 1.3461 (+0.23%)

Sterling lagged the euro. RTTNews said moderating expectations of Bank of England hikes weighed on the pound, which follows from the drop in UK inflation to 2.8% reported the previous week. The pair touched 1.3514 on Tuesday and 1.3366 on Thursday before settling in the middle.

USD/JPY: 159.20 to 159.27 (+0.04%)

The yen was the one major the dollar did not lose ground against. The range was tight at 158.76–159.67. Ceasefire hopes should in theory have helped the yen, as Japan is a major energy importer, but the US–Japan rate gap remained wide and the pair stayed just below 160. According to Adnkronos, market sources believed the authorities had set their line around 160, and Japanese officials' warnings limited further yen weakness, RTTNews noted.

AUD/USD: 0.7127 to 0.7184 (+0.80%)

The Aussie was the strongest of the majors this week despite softer domestic inflation. That shows how much risk sentiment matters for commodity-linked, growth-sensitive currencies: record US equity highs and ceasefire hopes outweighed a lower expected RBA path. The range was 0.7097 (Thursday) to 0.7202 (Friday).

XAU/USD: 4,509.38 to 4,539.27 (+0.66%)

Gold touched a two-month low midweek, then rebounded with the softer dollar. It finished the week slightly higher. Gold is responding to the same forces as currencies: when the dollar and yields ease, the opportunity cost of holding gold falls.

Headline risk: why Thursday matters

Thursday is the kind of day that catches traders out. The morning narrative was clear: renewed hostilities, firm dollar, oil rebounding. A single news report reversed the market within hours, and the pairs that had made weekly lows on Thursday made weekly highs on Friday.

There are three lessons here.

First, unscheduled headlines can be bigger than scheduled data. The PCE release was the week's main calendar event, and it was overshadowed. An economic calendar tells you when known risks arrive; it does not protect you from unknown ones.

Second, a report is not a deal. Reuters itself pointed out that several earlier reports had not ended the war, and Trading Economics noted the terms had not been approved. Markets often price the headline first and verify later. Prices that move on unconfirmed news can reverse just as quickly.

Third, holiday weeks amplify this. With US and UK markets closed on Monday, liquidity was thinner at the start of the week, and the oil move on Monday was larger as a result. Thin markets mean wider spreads and more slippage on stop orders.

PCE versus CPI: why the Fed watches both

Newer traders often ask why there are two US inflation measures. CPI, from the Bureau of Labor Statistics, measures prices paid by urban consumers and is released earlier in the month. PCE, from the Bureau of Economic Analysis, covers a broader basket, adjusts its weights as consumers switch between goods, and is the measure the Fed uses for its 2% target. Because CPI and PPI come out first, much of the PCE result can be estimated in advance, which is why PCE surprises are usually smaller.

This week the headline PCE rate of 3.8% looked alarming, but the monthly core figure of 0.2% was softer than the previous month. As LMAX Group strategist Joel Kruger put it to Reuters, the softer core data suggested the Fed could be "a little bit less aggressive". Markets focus on the most recent monthly change because it shows the current pace, while the annual rate also reflects price rises from up to a year ago.

Oil as a currency driver

The 8% fall in Brent this week is a reminder that oil is not just a commodity story. For energy importers such as the euro area, Japan and the UK, a lower oil price means less money flowing abroad to pay for fuel, a better trade balance and less imported inflation. For the US, now a net energy exporter, the effect is smaller and partly offsetting. That asymmetry is one reason EUR/USD rose and the dollar index fell as oil dropped.

Oil also feeds directly into central bank thinking. A large part of the case for Fed hikes in May rested on energy pushing up inflation expectations. When oil falls on peace hopes, that case weakens, and short-term interest-rate expectations ease with it. If you follow the chain from oil to inflation expectations to rate expectations to currencies, the week's moves make sense. Our guide on how economic data moves forex covers the same chain for scheduled data.

What intervention does, and does not, do

Japan's ¥11.7 trillion intervention was a record, yet USD/JPY ended May not far from where the episode began. That is typical. Intervention can slow a move, punish speculative positions and buy time, but it cannot permanently change a currency's direction if the underlying driver, here the gap between US and Japanese interest rates, stays in place. Intervention is most effective when it coincides with a shift in fundamentals.

For traders, the practical risk is the size of the moves when it happens. On 30 April, the dollar fell from about 160 yen to about 155, according to Adnkronos. A trader holding one standard lot of USD/JPY long at 160 with no stop would have lost about 500 pips. At roughly ¥1,000 per pip on a standard lot, that is about ¥500,000, or roughly $3,200 at 155 (illustrative calculation). Leverage magnifies a move like that, and most retail CFD accounts lose money. Our guides on leverage and margin and margin calls and stop-outs explain how quickly a gap can consume an account.

What this week teaches

• Know what the narrative depends on. The May dollar rally depended on the war continuing. When de-escalation looked possible, the trade reversed.
• Headlines can beat the calendar. The week's biggest move came from a news report, not a data release.
• Unconfirmed reports are fragile. Treat a "deal reported" headline as a probability, not an outcome.
• Monthly changes tell you the current pace. Annual inflation rates carry old news; the monthly core change is what moved expectations.
• Intervention slows moves, it rarely reverses trends. USD/JPY ended the month close to 160 despite a record spend.

Scheduled next week (1–5 June)

Listed for planning only; nothing here is a forecast of price direction. See how it played out in the following week's recap.

• Monday 1 June: US ISM manufacturing PMI for May.
• Tuesday 2 June: US JOLTS job openings for April.
• During the week: Euro-area flash inflation for May; US ISM services PMI; Australia's first-quarter GDP.
• Friday 5 June: US employment report for May (nonfarm payrolls, unemployment rate, wages); Canada's May labour force survey.
• All week: Whether the reported US–Iran ceasefire extension is confirmed, and any progress on reopening the Strait of Hormuz.

Sources

• RTTNews: Dollar added to losses last week amid reports of a US–Iran deal (1 June 2026)
• Fortune: Dow futures, oil prices and bond yields on Hormuz reopening reports and US airstrikes (25 May 2026)
• Kitco / Reuters: Dollar firms as fresh US strikes dim Iran ceasefire hopes (26 May 2026)
• Australian Bureau of Statistics: CPI rose 4.2% in the year to April 2026
• New Straits Times / Reuters: US dollar weakens on reports of US–Iran ceasefire deal
• ATFX: Daily market highlight, 29 May 2026
• Trading Economics: Dollar holds decline on US–Iran deal (29 May 2026)
• Adnkronos: Japan spends record 11.7 trillion yen in April–May interventions (29 May 2026)
• US Bureau of Labor Statistics: June 2026 release schedule
• StatMuse: daily gold prices, May 2026