The unexpected twist in the US-Iran deal has shaken the market, with the dollar index supported by hawkish expectations, awaiting the swearing-in of the new Federal Reserve chairman tonight.
2026-05-22 15:30:40
Despite market participants’ continued confidence that the US and Iran are about to reach an agreement, the US dollar index rose slightly on Friday (May 22), trading around 99.29.
However, Iran's hardline stance on uranium enrichment and control of the Strait of Hormuz, along with expectations that the Federal Reserve is unlikely to cut interest rates this year, have limited the upside potential of the dollar index.
According to reports, with Pakistan's mediation, the US and Iran have reached a final draft agreement, which may be announced within the next few hours. The report also points out that key terms of the agreement include an immediate ceasefire, guarantees of freedom of navigation in the Persian Gulf and the Strait of Hormuz, and the commencement of negotiations on outstanding issues within a week.
However, this so-called "agreement reached" news was quickly proven to be a false alarm. Subsequently, several media outlets retracted the report, denying its authenticity by calling it "fabricated" and adding that the Pakistani Army Chief of Staff would not be traveling to Tehran that evening, as Pakistan had originally planned to only go to Iraq to mediate when an agreement was about to be reached, which effectively negated the claim that an agreement was imminent.
More importantly, senior Iranian officials have made it clear that the issue of enriched uranium and Iran's control of the Strait of Hormuz remain the crux of the matter. Reports indicate that Iran's Supreme Leader has issued a clear directive requiring that Iran's near-weapon-grade stockpile of highly enriched uranium not be shipped abroad. Meanwhile, US President Trump has repeatedly emphasized that these issues are non-negotiable, publicly stating, "We'll take the highly enriched uranium. We don't want it, we don't need it, and we'll probably destroy it once we get it." There is absolutely no sign of the two sides bridging their positions on these core issues.
Regarding monetary policy, traders still believe the Federal Reserve will keep interest rates unchanged or raise them at least once this year. The CME FedWatch tool shows that the market sees approximately a 50.8% probability that the Fed will maintain current interest rates and a 48.1% probability that it will raise rates at least once this year.
This monetary policy expectation stems from the recent series of better-than-expected US inflation data. The US CPI rose 3.8% year-on-year in April, a new high since May 2023, while core CPI climbed to 2.8% year-on-year, both exceeding market expectations. Soaring energy prices are the main driver of this inflationary rebound—energy commodity inflation surged 29.2% year-on-year in April, with gasoline prices rising 28.4% year-on-year. A deeper reason lies in the continued blockade of the Strait of Hormuz, leading to disruptions in the global energy supply chain and keeping oil prices above $100 per barrel, continuously transmitting pressure to US inflation.
Meanwhile, the Federal Reserve's policy stance has undergone a fundamental shift. The minutes of the April FOMC meeting showed that most officials believed further tightening of policy "may become appropriate" if inflation persists above 2%, and three regional Fed presidents opposed retaining the dovish wording in the statement that hinted at a possible rate cut. The core of this shift is that policymakers' concerns about inflation have surpassed their concerns about the job market, becoming the dominant factor influencing interest rate decisions. Lin Xianping, associate professor at Zhejiang University City College, analyzed that the Fed's April meeting minutes clearly shifted to a hawkish stance, with a high probability of maintaining interest rates unchanged in 2026, and the earliest window for a rate cut potentially being postponed to 2027. This hawkish expectation has provided a floor for the dollar and has also kept US Treasury yields in the high range of 4.5%-4.8%.
From a technical perspective, the US dollar index is currently trading around 99.25, holding steady above the 20-day moving average (98.61), and the short-term bias remains constructive, with prices continuing their rebound from last month's lows. However, the RSI is struggling to break through the 60.00 level, indicating that upward momentum remains insufficient.
(US Dollar Index Daily Chart, Source: FX678)
On the downside, initial support is located around the 20-day moving average at 98.61. If the overall bullish tone continues, pullbacks may attract bargain hunters at this level. If the US dollar index fails to hold above the 20-day moving average, it may slide towards 98.00. On the upside, if the index successfully breaks through the May 21 high of 99.52, it may extend further towards the 100.00 psychological level.
In summary, the US dollar index is currently caught in a tug-of-war between geopolitical news and monetary policy expectations. On the one hand, optimism surrounding a near-agreement between the US and Iran limits the safe-haven demand for the dollar; on the other hand, Iran's hardline stance on core issues and hawkish expectations from the Federal Reserve provide support for the dollar. Technically, the dollar index is holding steady above the 20-day moving average, but the RSI indicates insufficient upward momentum, suggesting it may continue to consolidate within the 99.00-99.50 range in the short term. A break above the May 21 high of 99.52 would be a key signal confirming further upward movement towards 100.00, while a break below the 20-day moving average of 98.79 could trigger a pullback to 98.00.
The key focus today is on Kevin Warsh's inauguration as Federal Reserve Chairman at the White House on Friday, local time. He faces a double whammy of internal divisions due to renewed inflation and skepticism from his colleagues. Although he has repeatedly articulated his understanding of the Fed's responsibilities and bluntly pointed out the Fed's mistakes, it remains to be seen whether he can maintain the Fed's independence after taking office.
At 15:28 Beijing time on May 22, the US dollar index was at 99.29.
However, Iran's hardline stance on uranium enrichment and control of the Strait of Hormuz, along with expectations that the Federal Reserve is unlikely to cut interest rates this year, have limited the upside potential of the dollar index.
Geopolitical Dynamics: US-Iran Agreement Nearing Implementation, Core Differences Remain Unresolved
According to reports, with Pakistan's mediation, the US and Iran have reached a final draft agreement, which may be announced within the next few hours. The report also points out that key terms of the agreement include an immediate ceasefire, guarantees of freedom of navigation in the Persian Gulf and the Strait of Hormuz, and the commencement of negotiations on outstanding issues within a week.
However, this so-called "agreement reached" news was quickly proven to be a false alarm. Subsequently, several media outlets retracted the report, denying its authenticity by calling it "fabricated" and adding that the Pakistani Army Chief of Staff would not be traveling to Tehran that evening, as Pakistan had originally planned to only go to Iraq to mediate when an agreement was about to be reached, which effectively negated the claim that an agreement was imminent.
More importantly, senior Iranian officials have made it clear that the issue of enriched uranium and Iran's control of the Strait of Hormuz remain the crux of the matter. Reports indicate that Iran's Supreme Leader has issued a clear directive requiring that Iran's near-weapon-grade stockpile of highly enriched uranium not be shipped abroad. Meanwhile, US President Trump has repeatedly emphasized that these issues are non-negotiable, publicly stating, "We'll take the highly enriched uranium. We don't want it, we don't need it, and we'll probably destroy it once we get it." There is absolutely no sign of the two sides bridging their positions on these core issues.
Monetary Policy: A Fed rate cut is unlikely this year, but a rate hike remains a possibility.
Regarding monetary policy, traders still believe the Federal Reserve will keep interest rates unchanged or raise them at least once this year. The CME FedWatch tool shows that the market sees approximately a 50.8% probability that the Fed will maintain current interest rates and a 48.1% probability that it will raise rates at least once this year.
This monetary policy expectation stems from the recent series of better-than-expected US inflation data. The US CPI rose 3.8% year-on-year in April, a new high since May 2023, while core CPI climbed to 2.8% year-on-year, both exceeding market expectations. Soaring energy prices are the main driver of this inflationary rebound—energy commodity inflation surged 29.2% year-on-year in April, with gasoline prices rising 28.4% year-on-year. A deeper reason lies in the continued blockade of the Strait of Hormuz, leading to disruptions in the global energy supply chain and keeping oil prices above $100 per barrel, continuously transmitting pressure to US inflation.
Meanwhile, the Federal Reserve's policy stance has undergone a fundamental shift. The minutes of the April FOMC meeting showed that most officials believed further tightening of policy "may become appropriate" if inflation persists above 2%, and three regional Fed presidents opposed retaining the dovish wording in the statement that hinted at a possible rate cut. The core of this shift is that policymakers' concerns about inflation have surpassed their concerns about the job market, becoming the dominant factor influencing interest rate decisions. Lin Xianping, associate professor at Zhejiang University City College, analyzed that the Fed's April meeting minutes clearly shifted to a hawkish stance, with a high probability of maintaining interest rates unchanged in 2026, and the earliest window for a rate cut potentially being postponed to 2027. This hawkish expectation has provided a floor for the dollar and has also kept US Treasury yields in the high range of 4.5%-4.8%.
Technical Analysis: The US dollar index is holding steady above its 20-day moving average, but upward momentum is insufficient.
From a technical perspective, the US dollar index is currently trading around 99.25, holding steady above the 20-day moving average (98.61), and the short-term bias remains constructive, with prices continuing their rebound from last month's lows. However, the RSI is struggling to break through the 60.00 level, indicating that upward momentum remains insufficient.
(US Dollar Index Daily Chart, Source: FX678)
On the downside, initial support is located around the 20-day moving average at 98.61. If the overall bullish tone continues, pullbacks may attract bargain hunters at this level. If the US dollar index fails to hold above the 20-day moving average, it may slide towards 98.00. On the upside, if the index successfully breaks through the May 21 high of 99.52, it may extend further towards the 100.00 psychological level.
The US dollar index is expected to fluctuate in the short term; a break above 99.52 is needed to open up further upside potential.
In summary, the US dollar index is currently caught in a tug-of-war between geopolitical news and monetary policy expectations. On the one hand, optimism surrounding a near-agreement between the US and Iran limits the safe-haven demand for the dollar; on the other hand, Iran's hardline stance on core issues and hawkish expectations from the Federal Reserve provide support for the dollar. Technically, the dollar index is holding steady above the 20-day moving average, but the RSI indicates insufficient upward momentum, suggesting it may continue to consolidate within the 99.00-99.50 range in the short term. A break above the May 21 high of 99.52 would be a key signal confirming further upward movement towards 100.00, while a break below the 20-day moving average of 98.79 could trigger a pullback to 98.00.
The key focus today is on Kevin Warsh's inauguration as Federal Reserve Chairman at the White House on Friday, local time. He faces a double whammy of internal divisions due to renewed inflation and skepticism from his colleagues. Although he has repeatedly articulated his understanding of the Fed's responsibilities and bluntly pointed out the Fed's mistakes, it remains to be seen whether he can maintain the Fed's independence after taking office.
At 15:28 Beijing time on May 22, the US dollar index was at 99.29.
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