Daily Market Update
May 20, 2026EUR/USD ranged from the high 1.15’s to low 1.16’s overnight. EUR/USD struggles to stage a rebound following Tuesday’s decline and holds steady at around 1.1600 on Wednesday.
The pair faces headwinds as the US Dollar holds firm due to the combined effect of the risk-aversion market theme and rising United States Treasury Yields, courtesy of the US-Iran uncertainty. FOMC Minutes is next of note for the major.
During the press time, S&P 500 futures extend their Tuesday losses to near 7,340, reflecting a risk-off market mood. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades close to its six-week high at 99.43.
Market sentiment turns risk-off amid fears that the war in the Middle East could resume if Iran doesn’t reach a deal with the US.
On Tuesday, US President Donald Trump threatened to resume attacks on Iran in “two or three days” as part of the push for a deal to end the war, after he said he had just called off a US attack, Bloomberg reported.
Meanwhile, 10-year US Treasury Yields have posted a fresh over-a-year high at 4.91% as traders have priced out the possibility of interest rate cuts by the Federal Reserve (Fed) this year.
Going forward, investors will focus on the Federal Open Market Committee (FOMC) minutes of the April policy meeting and the Eurozone/US preliminary private sector PMI data for May.
GBP/USD stays little changed near 1.3400 the second half of the day on Wednesday, unresponsive to the softer-than-expected UK Consumer Price Index (CPI) inflation data.
A broadly stronger US Dollar and risk aversion keep the Pound Sterling undermined amid looming UK political uncertainty.
The Bank of England (BoE) had wanted a clean signal. Instead it got a labour market that is still adding jobs faster than the population is willing to absorb them, with wages mostly cooling but a stubborn bonus-driven tail, and unemployment quietly drifting higher.
Sterling slid through Tuesday’s London session, eventually probing below 1.34 in late trade before clawing back toward the handle into the close.
Japan’s economy expanded at an annualized 2.1% rate in the first quarter (Q1) of 2026, beating expectations of 1.7%. Meanwhile, Japan’s GDP expanded 0.5% QoQ in Q1, compared to a 0.3% growth seen in Q4 of 2025.
This figure came in stronger than the expectation of a 0.4% expansion.
Finance Minister Satsuki Katayama said on Monday that Japan stands ready to act against excessive foreign exchange volatility at any time, while ensuring that any intervention is conducted in a way that avoids pushing up US Treasury yields.
The potential of further intervention from Japanese officials might underpin the JPY and act as a headwind for the pair.
On the other hand, a hawkish stance of the US Federal Reserve (Fed) might help limit the Greenback’s losses. Traders reprice the chance that the US central bank would have to tighten policy to contain inflation with the Strait of Hormuz remaining closed and energy markets disrupted.
Markets are pricing in a 41.5% chance that the Fed will raise interest rates by 25 basis points (bps) by year-end, according to the CME FedWatch tool.
Source FX Street
