USD Gains on Iran Jitters

Key Highlight

• USD strength continued as geopolitical tensions in the Middle East intensified following further US strikes on Iran

• GBP weakened as markets reduced expectations for future Bank of England rate increases with only 38bps of tightening now priced through 2026

• NZD outperformed the major currencies after the RBNZ maintained a hawkish stance and strengthened expectations for a July rate move

• Rising oil prices and safe haven demand continued to support the US dollar heading into the weekend

Market Recap

The US dollar extended its recent gains after reports suggesting progress towards an interim peace agreement between the US and Iran were denied by Washington. Earlier optimism that shipping conditions through the Strait of Hormuz could normalise within weeks quickly faded, leading investors back towards safer assets and supporting the dollar.

Sterling softened across the board as expectations for further Bank of England tightening continued to decline. Markets are now pricing just 38bps of additional hikes through 2026 compared with 42bps previously and significantly below expectations seen earlier this month. With reduced rate support, GBP has struggled to find momentum.

The New Zealand dollar was the strongest performer among the major currencies after the Reserve Bank of New Zealand delivered a hawkish hold. A closely divided 3 3 vote decision, settled by Governor Breman’s casting vote, increased confidence that another rate rise could arrive as soon as July. This helped push GBPNZD down more than 1%.

Meanwhile, the Australian dollar underperformed after mixed inflation data reinforced expectations that the Reserve Bank of Australia may keep rates unchanged for longer, with markets now leaning towards November for the next possible move.

During Asian trading, fresh US military strikes in Iran added to market caution. Brent crude oil rose more than 3%, adding further support to the US dollar as investors moved towards safe haven assets.

Market Overview

Attention today turns to the US Core PCE inflation release at 13:30, which remains the Federal Reserve’s preferred inflation measure. Forecasts expect inflation to remain unchanged at 0.3% month on month and 3.3% year on year.

A stronger than expected reading would likely reinforce expectations that US interest rates remain higher for longer, which could provide further support for the dollar. Ongoing geopolitical tensions and rising oil prices are also increasing concerns around inflation pressures while weighing on global growth prospects.

Both EUR and GBP may remain vulnerable despite relatively hawkish central bank expectations in Europe. Higher energy exposure across the region leaves European currencies more sensitive to rising oil prices compared with the US dollar.

JPY also remains in focus as USDJPY trades near levels that have previously triggered intervention from Japanese authorities. Upcoming data from Japan’s finance ministry is expected to show sizeable intervention activity in recent sessions.

Overall, the broader market tone continues to favour the US dollar into the weekend as geopolitical uncertainty, elevated oil prices and resilient US inflation expectations continue to drive safe haven demand.

28th May 2026

This document has been prepared solely for information and is not intended as an Inducement concerning the purchase or sale of any financial instrument. By its nature market analysis represents the personal view of the author and no warranty can be, or is, offered as to the accuracy of any such analysis, or that predictions provided in any such analysis will prove to be correct. Should you rely on any analysis, information, or report provided as part of the Service it does so entirely at its own risk, and Frank eXchange Limited accepts no responsibility or liability for any loss or damage you may suffer as a result.  Information and opinions have been obtained from sources believed to be reliable, but no representation is made as to their accuracy. No copy of this document can be taken without prior written permission.