Daily Market Update
May 22, 2026EUR/USD ranged from the high 1.15’s to low 1.16’s overnight. A stronger US economic growth outlook is adding weight to the case for monetary tightening and boosting the Greenback.
Fed officials remain cautious as they evaluate whether to adjust short-term interest rates. While they are currently holding the federal funds rate steady, policymakers are moving away from the idea of rate cuts and are increasingly open to raising rates if inflation fails to cool down.
The administration of US President Donald Trump announced that Trump will swear in Kevin Warsh as the chair of the US Federal Reserve on Friday at the White House.
The new chair succeeds Jerome Powell, whose term expired on Friday but who has continued to serve on a pro-tempore basis until the transition.
On the US data front, the Department of Labor (DOL) showed that Initial Jobless Claims fell by 3,000 to 209,000 during the second week of May, indicating continued resilience in the labor market.
Meanwhile, Continuing Jobless Claims increased to 1,782,000 for the week ending May 9, up from 1,776,000 the previous week.
The Euro (EUR) struggles against the US Dollar (USD) as traders reacted to a surprising contraction in the Eurozone economy.
According to the latest S&P Global flash PMI data release on Thursday, the Euro Area economy shrank in May at its fastest pace since late 2023, driven by a conflict-fueled surge in living costs that stifled service demand and pushed input price inflation to a three-year high.
Market attention now shifts to upcoming German economic indicators, including the June GfK Consumer Confidence Survey, Q1 GDP figures, and the IFO Business Survey.
The British Pound (GBP) has been struggling to attract any meaningful buyers amid mixed signals over the Bank of England’s (BoE) policy outlook and the UK political uncertainty.
In fact, Swati Dhingra, an external MPC member, said that the BoE might not need to raise rates if its “scenario B” – where higher energy prices have only moderate second-round effects – materialises. In contrast, fellow external member Catherine Mann warned that high inflation in late 2026 could become embedded in wage deals for 2027.
Meanwhile, BoE Governor Andrew Bailey said on Wednesday that a rise in market interest rates since the start of the Iran war has given the central bank more time to assess the economic impact of the conflict.
Nevertheless, markets are still pricing in the possibility of at least one interest rate hike by the BoE in 2026. The GBP bulls, however, seem hesitant amid serious leadership challenges to UK Prime Minister Keir Starmer. This, along with a bullish US Dollar (USD), contributes to keeping a lid on the GBP/USD pair.
Despite the incoming positive headlines, investors remain skeptical about a US-Iran peace deal amid major disagreements over Tehran’s nuclear program and a standoff over the critical Strait of Hormuz.
In fact, the Islamic Republic’s Supreme Leader, Mojtaba Khamenei, stated that Iran’s uranium enrichment and Tehran’s control over the strategic waterway remain major sticking points in the negotiations. This, along with hawkish US Federal Reserve (Fed) expectations, underpin the USD and cap the GBP/USD pair.
Minutes from the April 28–29 FOMC meeting released on Wednesday revealed that a majority policymakers believe that policy firming would likely become appropriate if inflation continued to run persistently above the 2% target.
Traders were quick to react and are now pricing in around a 60% chance that the US central bank will raise borrowing costs by the year-end. This, in turn, assists the USD in preserving its recent strong gains to a six-week high and warrants some caution for the GBP/USD bulls.
USD/JPY remains subdued for the second successive day, trading around 158.90 during the Asian hours on Thursday. The pair depreciates as the Japanese Yen (JPY) holds gains following the release of Japan’s Merchandise Trade Balance Total data.
Japan’s trade balance swung to a surplus of JPY 301.9 billion in April 2026, reversing a deficit of JPY 149.5 billion from the same period last year and significantly outperforming the market’s projected JPY 29.7 billion shortfall.
Japan’s Exports surged by 14.8% year-on-year to a near-record JPY 10,507.3 billion, accelerating from an 11.5% increase in March and recording the strongest growth in three months. Over the same period, Imports grew by 9.7% to JPY 10,205.4 billion.
While this represents a slight deceleration from the 10.9% gain seen in March, the figure still surpassed market expectations of an 8.3% increase.
Source FX Street
