Monthly Currency Report Summary – May 2026
Overview
May 2026 was another month dominated by geopolitical risk, energy market volatility and shifting expectations around central bank policy. The conflict between the US and Iran remained the main driver of market sentiment, with oil prices reacting sharply to headlines around the Strait of Hormuz, ceasefire talks and further military escalation. As a result, FX markets remained highly sensitive to risk appetite, with the US Dollar repeatedly benefiting from safe-haven demand when tensions increased.
For Sterling, May was a difficult month to interpret. GBP/USD began the month close to 1.3500 and attempted to hold above 1.3600 during the first half, but repeated waves of risk aversion and political instability in the UK prevented the pair from building a sustained move higher. Better UK economic growth data and some resilience around key moving averages gave traders reason to support Sterling at times, but concerns over gilt yields, domestic politics and uncertainty around the Bank of England’s policy path weighed on confidence.
The Euro also came under pressure through large parts of the month. EUR/USD struggled to maintain levels above 1.1750 early in May and later slipped toward 1.1600 as Middle East tensions, stronger US data and rising Treasury yields supported the Dollar. While the Euro occasionally benefited from hopes of a ceasefire and more constructive ECB commentary, upside remained capped by the region’s exposure to energy supply risks and limited domestic data.
GBP/EUR remained more stable than the Dollar pairs, but it still experienced important swings. The cross moved mostly between 1.1450 and 1.1600, with Sterling occasionally supported when EUR/USD weakened more sharply than GBP/USD. However, the pair repeatedly struggled to hold gains near 1.1600, as traders remained cautious on the UK outlook and mindful of the Euro’s relative resilience during periods of Sterling weakness.
By the end of May, markets were still trading carefully. The prospect of renewed peace talks in the Middle East provided some hope, but traders remained cautious ahead of June’s ECB policy decision, further BoE commentary and key US inflation and employment data.
GBP/USD
GBP/USD opened May under pressure as renewed geopolitical tensions pushed oil prices higher and supported the Dollar. Early in the month, the pair dropped toward 1.3500 as Iran threatened US naval operations in the Strait of Hormuz, reinforcing the Greenback’s safe-haven appeal. Sterling found some support near the 20-day moving average below 1.3550, but the broader risk-off tone made it difficult for the pair to recover quickly.
The first part of May saw repeated attempts to reclaim 1.3600. Cable traded around this level on several occasions, with traders looking for confirmation from US employment data, Andrew Bailey’s commentary and developments in the Middle East. However, 1.3600 became a strong resistance area. Even when the pair traded from the front foot, upside was limited by concerns that the UK economy could face renewed inflation pressure from elevated energy prices.
UK bond market conditions also became an important theme. Long-term borrowing costs remained high, with reports suggesting the UK was facing some of the highest long-term funding costs since the 1990s. This weighed on Sterling because higher gilt yields were seen less as a sign of economic strength and more as a reflection of fiscal and inflation risk. Traders remained cautious about the UK’s ability to absorb further energy shocks without weakening growth.
Mid-month, GBP/USD lost ground as political uncertainty in the UK intensified and US-Iran tensions worsened. After trading close to 1.3600, the pair fell below the 20-day moving average and approached 1.3500. Worse-than-expected US CPI data did not weaken the Dollar meaningfully because traders interpreted the broader inflation picture as consistent with a more cautious Fed stance. At the same time, UK political pressure on Keir Starmer and weaker local election results added to Sterling outflows.
The pair found some support after better-than-expected UK growth figures, but this was not enough to restore a sustained bullish trend. On 14 May, GBP/USD remained below 1.3520 despite stronger UK GDP data, showing that broader risk sentiment and US headlines were still the dominant forces. Trump’s discussions with Xi in Beijing, US retail data and ongoing uncertainty around Iran kept traders from building aggressive Sterling positions.
By the second half of May, Cable dipped toward 1.3315 during the Asian session as drone strikes on nuclear facilities escalated concerns in the Middle East. The pair later recovered some ground, helped by oversold conditions on the RSI and a degree of buying interest near the yearly moving average. However, the rebound was limited. The market remained concerned about UK political stability, gilt yields and the possibility that the BoE may not be as aggressive as previously expected.
UK CPI at 2.8 percent was better than expected, but traders were not fully convinced that this reflected the likely inflation path for the rest of the year. Energy price risk remained a concern, and many market participants continued to wait for clearer guidance from Andrew Bailey. By late month, GBP/USD remained below 1.3450 and struggled to hold above the 20-day moving average. The pair briefly fell toward 1.3350 before recovering, but Dollar demand remained strong whenever Iran-related headlines deteriorated.
Overall, GBP/USD ended May with a weaker tone than it had at the start of the month. The pair’s inability to hold above 1.3600 and its repeated declines toward 1.3350 to 1.3400 highlighted how sensitive Sterling remained to global risk conditions and domestic political uncertainty.
EUR/USD
EUR/USD also spent much of May under pressure. The pair began the month below 1.1700 after renewed USD demand dragged the Euro lower. Support around the yearly average near 1.1680 helped slow the decline, but the broader market was risk-off, and the Euro struggled to attract sustained buying.
Early in the month, EUR/USD attempted to recover toward 1.1750 and even pushed toward 1.1800 at times, helped by hopes of a revised peace deal between the US and Iran. However, the pair repeatedly failed to secure a lasting breakout. German factory orders and limited Eurozone data provided little support, leaving the pair heavily exposed to US employment data, oil market moves and Middle East headlines.
The first half of May saw EUR/USD fluctuate between 1.1700 and 1.1800. When peace hopes improved, the pair gained ground as Dollar demand faded. When tensions escalated, the Euro quickly slipped back. This pattern showed that the pair was being driven more by global risk sentiment than by Eurozone fundamentals.
Around mid-month, the pair came under more sustained pressure. Trump’s rejection of Iran’s peace proposal, the continued lack of Chinese support for the US position and concerns about Fed policy all weighed on EUR/USD. The pair dropped from around 1.1785 toward 1.1750 and later moved toward 1.1700. German ZEW data provided some potential for recovery, but it was not strong enough to offset the broader geopolitical backdrop.
By 20 May, EUR/USD had fallen below 1.1600, nearing a two-month low. Rising US Treasury yields and the lack of progress in Middle East peace talks supported the Dollar and undermined the Euro. With limited EU data available, the market focused heavily on US central bank narratives and the outlook for inflation. The lack of Eurozone catalysts meant the pair had little independent momentum.
The Euro’s weakness continued into the final week. EUR/USD struggled to hold above 1.1650 and then moved toward 1.1586 as US-Iran tensions escalated overnight. Although downside was partly capped by RSI signals suggesting the pair was nearing oversold territory, traders were reluctant to support the Euro aggressively while energy risks remained high.
Late in the month, there were signs of stabilisation. Reports of a potential 60-day ceasefire in the Middle East helped reduce some immediate risk pressure, and EUR/USD attempted to recover after falling earlier in the week. However, the pair failed to capitalise above 1.1660 and moved into the final session on the back foot. Poor German retail data further weakened sentiment, while traders looked ahead to preliminary inflation figures and the ECB’s upcoming policy confirmation.
Overall, EUR/USD ended May weaker, having moved from the upper 1.17s earlier in the month toward the mid-1.16s and briefly below 1.1600. The pair remained vulnerable to renewed Dollar strength, particularly if geopolitical tensions remained unresolved or if the Fed continued to resist a softer policy stance.
GBP/EUR
GBP/EUR remained range-bound for much of May but still provided important insight into the relative performance of Sterling and the Euro. The pair started the month near 1.1600 after gains in late April and early May, but it repeatedly struggled to hold levels at or above that area. Limited room on the upside RSI and concerns about the UK outlook prevented Sterling from building a sustained breakout.
Early in the month, GBP/EUR benefited from weakness in EUR/USD. As the Euro fell more sharply against the Dollar than Sterling did, the cross moved back toward 1.1600. However, each attempt to hold near that level faded. Traders were cautious about buying Sterling too aggressively because of UK gilt market concerns, political uncertainty and doubts over the BoE’s policy direction.
During the middle of May, the cross moved lower as political instability in the UK weighed on Sterling. On 12 May, GBP/EUR fell after the Cable declined more sharply than the Euro against the Dollar. The pair lost support from the 20-day moving average and moved back toward the mid-1.15s. However, losses were not one-way. When EUR/USD came under heavier pressure, the cross recovered and pushed toward 1.1550.
The pair held above the 200-day moving average at several points, which helped maintain a modestly constructive technical picture. However, the monthly average remained difficult to reclaim. This prevented traders from treating the recovery as a confirmed trend shift. The pair reached highs around 1.1540 to 1.1590 during the month, but momentum faded whenever Sterling-specific risks resurfaced.
By late May, GBP/EUR weakened again after the Euro outperformed Sterling against the Dollar. The pair fell below 1.1550 as markets reduced expectations of BoE aggression and as Sterling was affected by uncertainty around Iran and UK politics. Even so, the cross remained relatively resilient compared with the scale of moves in GBP/USD and EUR/USD.
The month ended with GBP/EUR still trading in the familiar 1.1500 to 1.1600 region. The key takeaway was that Sterling could gain when EUR/USD weakened more aggressively, but the market was not prepared to push the cross much higher without stronger evidence that the BoE would maintain a firmer policy stance than the ECB.
Outlook for June 2026
June begins with markets still focused on the Middle East, oil prices and central bank guidance. For GBP/USD, the main question is whether the pair can stabilise above 1.3400 or whether renewed Dollar strength pushes it back toward 1.3350. A move above 1.3500 would require a calmer geopolitical backdrop and a firmer tone from the Bank of England.
For EUR/USD, the 1.1600 area remains important. If the pair breaks decisively below this level, further downside toward the mid-1.15s could follow. However, a successful recovery above 1.1700 would suggest that the Euro has regained some confidence, particularly if the ECB sounds cautious on inflation.
GBP/EUR is likely to remain range-bound unless there is a clear shift in BoE or ECB expectations. The 1.1550 to 1.1600 area remains the key resistance zone, while support is likely to sit around 1.1500 and then 1.1450.
Overall, May reinforced the idea that FX markets are still being driven by global risk sentiment. Until there is greater clarity on the Middle East conflict and the next steps from the Fed, BoE and ECB, traders are likely to remain cautious and reactive rather than confident in long-term directional moves.