Monthly Currency Outlook — June 2026

In Brief

What Happened

• U.S. Dollar strengthening was limited in May, below half a percent, per the Bloomberg Dollar Spot Index
• Without a clear narrative, market classes deviated from one another while the Buck experienced its lowest month of realized volatility since December 2025
• The Japanese Yen fell 1.4% in value regardless of deploying a record US$73.6 BN worth of FX intervention over four weeks through May 27
• Lack of growth in the first quarter of the year, along with job losses figures, brought the Canadian Dollar down, making it the worst performer amongst the G-10 currencies
• Pound Sterling dropped by about 1.0% last month as political drama overshadowed steady economic data

Monex USA's View

• All attention will be on the likelihood of a Middle East deal coming to fruition after missed chances throughout May of completing the task
• As long as a ceasefire remains with dealmaking in the background, FX moves are likely to remain familiar with cautious trading taking place
• Central banks will give us a chance for clarity over monetary policy with answers to how they want to manage inflation, and if interest rate hikes will come
• Challenges remain the same, as the fog of war blurs the future with concerns over persistent turmoil
• Elections in Colombia are likely to impact the Peso (COP) after a shock result in the 1st Presidential round 

In focus

BDXY: Dollar a bit quiet in May as the back-and-forth regarding a peace deal confused markets

(Bloomberg chart shows a USD rally for March, a downfall erasing those gains in April, and a steady May)

“Petro-Dollar” strengthening did not return, but the Buck held back the negative backlash in April

• March marked the beginning of armed conflict, which propelled the Buck as a safe haven, amplifying its role in trading for costlier oil
• April cast doubt on the ability for operations to end quickly, which combined with poor indicators caused USD to tumble; worst month since December 2023
• End of May saw USD touch a 7-week high on a trade-weighted basis, meaning against a basket of FX of countries that trade the most with America
• June could turn out negatively for the Buck if indeed markets get a boost from good news diplomatically

THE VIEW — FX markets feel escalation is here for the long-term

No resolution to troubles in the Middle East keeps dominating headlines

Everyone is still waiting for the agreement to be signed, sealed, and delivered. “Breaking News” has lost meaning after many reports throughout last month that would negate one after the other. As one news piece would speak of details presented at the table, either the White House or the Iranian leadership in Tehran would quickly come out and call it false or misleading.

Although energy facilities have been mostly left untouched for a while, the damage to the oil trade has been done, with many economists predicting no relief in crude prices until 2027. Meanwhile, the Buck recuperated after a rough April of historically bad performance, backed by a few silver linings in economic figures and the good mood in the tech industry.

(Bloomberg chart shows the MSCI Emerging-Markets Currency Index all over the place in May, ultimately up)

We cannot talk about Iran without mentioning the key chokepoint that has made this a more complicated clash: the Strait of Hormuz. At various times in May, markets felt temporary relief, and the Buck would stumble as soon as the idea of opening the waterway and establishing a more consistent flow of traffic through it was reviewed as “likely in the next few days.” From mid-April into early May, investors chose to structurally short the U.S. Dollar, assuming that oil would slide down without issue below $100.00/barrel and that inflationary pressures from the conflict would fade.

Since none of this has occurred, many interbank desks are more often describing a market that is beginning to treat escalation risk as a persistent rather than a temporary alarm. May witnessed the Buck benefitting from a flight to safety, with G-10 currencies mostly struggling, but with the New Zealand Dollar being a special exception.

Granting the Reserve Bank of New Zealand conducted an easing cycle from August 2024, reducing interest rates by 325 basis points until November 2025, the turbulence in energy trade emanating from the war has shifted that loose-policy mentality. RBNZ officials are looking to hike interest rates, with odds of it happening at 83.2% for their July 8th meeting.

It is not just the Pacific Rim where inflationary worries have been exacerbated. Consumer Price Index figures domestically climbed to 3.2% on an annual average in April, marking the highest reading since May 2023. Naturally, the acceleration in price growth was due to higher costs for energy, which is becoming less accessible with fuel stuck in ships and ships hoping to get the green light. Growth economically has been evasive with the second reading of Q1 Gross Domestic Product (GDP) revised downward from 2.0% to just 1.6%. Indeed, this spells out irritating “stagflation.”

On the other side of the Atlantic, the Euro-zone is looking to tackle stubborn inflation first. European Central Bankers will meet on June 11th and are highly expected to be in line with an interest-rate increment. At the time of writing, chances of a 25-basis-point increase stood at 98.2%, basically guaranteed.

In the past two press conferences post-ECB gatherings, the confidence behind ECB President Christine Lagarde has given the shared currency an uplift, but the lack of economic progress cannot be ignored. Per Q1 GDP figures, the monetary-aligned area only saw a 0.1% rise, bringing the annual average down to 0.8%. Expect a high level of scrutiny from the media as they question whether this “hawkish” mentality is sustainable.

There will be plenty of central bank activity throughout the month of June, with crucial analysis to derive from the Bank of Canada on the 10th, followed by the ECB on the 11th. Members of the Bank of Japan will meet on the 16th ahead of the Fed’s first meeting run by Chairman Kevin Warsh, after replacing Jerome Powell, the day after. That week of monetary talk ends with the Bank of England assembling on the 18th, while a week after, Mexico’s central bank, Banxico, will meet on the 25th. Their official interest rate has been reduced in the last two committees from 7.0% to 6.5%.

Farther south, we shall see how the Colombian Peso (COP) behaves on the second round of Presidential elections, June 21st. After voting took place with multiple candidates on the initial ballot on May 31st, a 2nd runoff featuring the top two vote attainers is scheduled between Abelardo de la Espriella, surprising everyone by winning the first bout, and Ivan Cepeda, the Petro-picked contender who was assumed, erroneously, to possess an advantage with the electorate. COP fell by 1.4% in May but has jumped by 19.0% since the start of 2025. Emerging-Market currencies hit a seven-day rally to close out last month, so if an agreement over Iran is done, will the run against the Buck continue?

Each month Monex publishes an updated currency outlook covering central bank action, macroeconomic data, and projected FX rate targets across G10 and emerging-market currencies.