Daily Market Update
May 19, 2026EUR/USD ranged from the low to mid 1.16’s overnight. EUR/USD trades in negative territory below 1.1650 in the European morning on Tuesday. The pair softens as the US Dollar finds renewed haven demand amid persistent uncertainty around a likely US-Iran peace deal. The Greenback also capitalized on increased Fed rate hike bets due to the war-driven inflation risks.
US President Donald Trump said that he is holding off a military attack on Iran planned for Tuesday at the request of the leaders of Qatar, Saudi Arabia and the United Arab Emirates (UAE) as “serious negotiations are now taking place,” per BBC.
However, uncertainty remains high as Trump also warned that the US would be ready to “go forward with a full, large-scale attack on Iran on a moment’s notice” if there was no acceptable deal.
Signs of a prolonged conflict in the Middle East could boost a safe-haven currency such as the Greenback and create a headwind for the major pair in the near term.
Across the pond, hawkish comments from ECB policymakers could provide some support to the shared currency. ECB Governing Council member Yannis Stournaras said over the weekend that a modest ECB interest-rate increase could temper inflation without causing economic damage.
The majority of economists from the Reuters poll, around 85%, indicated that the ECB would raise its deposit rate by 25 basis points (bps) to 2.25% in June, up from just over half expecting that before the April meeting.
GBP/USD keeps the red near 1.3400 in the early European trading hours on Tuesday. The British Pound pays little heed to the mixed UK labor market report, facing headwinds from the UK political turmoil.
UK Prime Minister Keir Starmer is facing a major leadership crisis following poor local election results on May 7, triggering a wave of high-level government resignations and severe market volatility.
The International Monetary Fund (IMF) on Monday raised its growth forecast for the UK economy this year but warned that further “domestic uncertainty,” at a time when political instability is engulfing the government, could hit spending and investment.
On the USD’s front, hotter-than-expected US inflation data have driven hawkish Federal Reserve rhetoric, lifting the US Dollar (USD).
Traders in the fed funds futures market are pricing in a 35.0% chance that the US central bank will raise interest rates by 25 basis points (bps) by year-end, according to the CME FedWatch tool.
The USD/JPY pair prolongs its uptrend for the seventh consecutive day, and advances to a nearly three-week top during the first half of the European session. Spot prices currently trade just above the 159.00 mark and seem to draw support from a combination of factors.
The US Dollar (USD) regains positive traction following the previous day’s modest pullback from its highest level since April 7 amid persistent geopolitical uncertainties and rising bets for an interest rate hike by the US Federal Reserve (Fed).
The Japanese Yen (JPY), on the other hand, is undermined by economic concerns stemming from the Middle East conflict. The said factors counter data showing that Japan’s GDP expanded at a faster than expected pace in the first quarter and act as a tailwind for the USD/JPY pair.
US President Donald Trump said on Monday that he is holding off a planned attack on Iran at the request of Qatar, Saudi Arabia, and the United Arab Emirates.
Trump added that negotiations are not taking place, fueling optimism over a deal to end the Iran conflict. Investors, however, remain skeptical amid disagreements over Iran’s nuclear program and the Strait of Hormuz. Adding to this, Trump has said that he has instructed the US military to remain prepared for a full-scale attack on Iran if a deal is not reached.
Source FX Street
