The US Dollar Index (DXY) slipped towards 99.10 on Monday amid geopolitical updates and focus on a Federal Reserve leadership change. A White House official said Donald Trump will swear in Kevin Warsh as Fed Chair on Friday after the Senate approved a four-year term to replace Jerome Powell.
On US-Iran talks, Axios reported the White House viewed Iran’s latest proposal as “insufficient for a deal”, citing a senior US official. Trump said he ordered a pause on a planned US military attack scheduled for Tuesday after appeals from leaders in Qatar, Saudi Arabia and the UAE.
Oil Sanctions And Dollar Demand
Tasnim reported the US accepted a temporary lifting of Iran’s oil sanctions during negotiations, while Iran continues to seek full removal. The moves reduced some demand for the US dollar as a defensive holding.
EUR/USD rose towards 1.1640, GBP/USD traded near 1.3420, USD/JPY moved towards 158.90 and AUD/USD climbed towards 0.7160. WTI oil was flat near $102.30 a barrel, while gold held around $4,559.
Data due includes Australia Westpac confidence and RBA minutes, UK labour and claimant figures, US ADP and pending home sales, and Canada inflation on May 19. Further releases run through May 22, including China rates, UK inflation, Japan CPI, Germany GDP and US Michigan sentiment.
Looking back at the market mood from this time in 2025, we can see how uncertainty around Federal Reserve leadership and Middle East tensions were driving short-term dollar weakness. Today, the situation is different, as we have a more established view of the Fed’s data-driven approach to policy, with the Fed funds rate holding steady around 4.75% and the latest April Consumer Price Index (CPI) figures showing core inflation at a stubborn 2.9%. Therefore, volatility plays on the dollar should now be more focused on key data releases, such as the upcoming retail sales figures, rather than leadership speculation.
Shifting Market Drivers Since Last Year
The concerns over US-Iran negotiations and oil sanctions that dominated last year have given way to a market focused more on global demand dynamics. West Texas Intermediate crude is currently trading near $81 per barrel, well below the $102 level seen then, partly due to recent Energy Information Administration (EIA) data showing a surprise inventory build of 2.1 million barrels last week. Traders should therefore watch for signs of weakening consumer demand in PMI data from the US and Europe, as this could signal further downside for oil prices, making put options an interesting hedge.
We saw the Japanese Yen weakening significantly in 2025, with USD/JPY pushing toward 158.90 on fears of policy normalization that never fully materialized at that pace. While the Bank of Japan has since ended its negative interest rate policy, the wide interest rate differential with the US continues to pressure the yen, keeping USD/JPY elevated near 156.50. Given the continued risk of official intervention, buying out-of-the-money call options on USD/JPY could be a cost-effective way to maintain upside exposure to the carry trade while defining risk.
The extreme price of gold near $4,559 an ounce last year reflected a peak in geopolitical fear and inflationary pressures. Today, with gold trading around a more sober $2,415, its role has shifted from a pure inflation hedge to a safe-haven asset sensitive to real yields. With major inflation data coming from the UK and Canada this week, any surprising numbers could shift rate expectations and impact gold, suggesting straddle strategies could be effective to trade the potential volatility.
Risk-sensitive currencies like the Australian Dollar were rallying on improved sentiment in 2025, but the landscape has since become more complex. The Aussie dollar is now less about general risk appetite and more about the specific economic health of China, which recent industrial production data showed is slowing more than anticipated. This suggests that rather than chasing upside rallies in AUD/USD, traders might consider using option collars to protect long positions from potential negative surprises in upcoming Chinese data.
