Dollar Falls as Crude Prices Slide and Stocks Rebound

Rich Asplund

Mon, May 18, 2026 at 10:34 AM EDT 4 min read

The dollar index (DXY00) fell from a 1.25-month high today and is down by -0.21%.  The dollar gave up overnight gains today and turned lower after crude oil prices retreated following reports that the US proposed a temporary waiver of sanctions on Iran’s oil.  Lower crude prices lower inflation expectations and are dovish for Fed policy and bearish for the dollar.  Also, stronger stock prices today reduced liquidity demand for the dollar.  The dollar recovered from its worst level today after the May NAHB housing market index unexpectedly strengthened.

The dollar initially moved higher today on increased safe-haven demand after President Trump said the “clock is ticking” on Iran and it “better get moving FAST on a peace deal, or there won’t be anything left of them.” Also, ramped-up geopolitical tensions boosted safe-haven demand for the dollar after Reuters reported that Pakistan has deployed 8,000 troops, a squadron of fighter jets, and an air defense system to Saudi Arabia as part of a mutual defense pact, a deployment described as a “substantial, combat-capable force” to support Saudi Arabia if it comes under further attack.

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The US May NAHB housing market index rose +3 to 37, stronger than expectations of no change at 34.

Swaps markets are discounting the odds at 3% for a 25 bp rate cut at the next FOMC meeting on June 16-17.

EUR/USD (^EURUSD) rebounded from a 1.25-month low today and is up +0.15%.  Short covering emerged in the euro today after the dollar gave up an overnight advance and turned lower.  Also, today’s -1% decline in crude oil prices is positive for the Eurozone economy and the euro, as Europe imports most of its energy needs.

Swaps are discounting an 86% chance of a +25 bp rate hike by the ECB at the next policy meeting on June 11.

USD/JPY (^USDJPY) today is up by +0.09%.  The yen fell to a 2-week low against the dollar today after Japanese Prime Minister Sanae Takaichi said she has called on the finance ministry to compile a yen-negative supplementary budget to address rising commodity prices driven by the ongoing conflict in the Middle East.

The yen recovered from its worst level today when crude oil prices tumbled on reports that the US proposed a temporary waiver of sanctions on Iranian oil.  Also, lower T-note yields today are supportive of the yen.  In addition, higher Japanese government bond yields have strengthened the yen’s interest rate differentials as the 10-year JGB bond yield rose to a 29-year high of 2.807% today.