Conflict between the US, Israel, and Iran proved the major market theme yet again in April, despite a ceasefire agreed early in the month. While this was enough to see the dollar cool from recent highs, the twists and turns of peace negotiations continued to buffet currency markets. More typical catalysts remain overshadowed by evolving risk conditions and oil prices, with no lasting resolution in sight. That should remain the case in May too, although our baseline does foresee a framework agreement emerging in the coming weeks, allowing trade flows through the Strait of Hormuz to finally resume.
Accordingly, we think the month ahead will eventually see more immediate Middle East concerns give way to worries about economic scarring. Still, traders are likely to remain wary of any peace deal collapsing, at least initially, while energy supply disruptions are yet to fully filter through, keeping oil prices supported. We think this suggests a modest uplift for the buck in the month ahead on balance, even as markets begin to refocus on inflation, growth, and monetary policy, once a peace deal is announced. Longer term, however, our view remains that those fundamentals continue to favour renewed greenback downside.
Read our May 2026 FX Forecasts here:
DOWNLOAD THE FULL REPORT
Authors:
Nick Rees, Head of Macro Research
Barry van der Laan, Senior FX Market Strategist