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Markets enter May with the federal funds target range at 3.50% to 3.75%, the Fed having concluded its 28-29 April meeting, and the next decision not due until 16-17 June. Brent crude is trading near US$108 per barrel, with the IEA describing the ongoing Iran conflict as the largest energy supply shock on record as the Strait of Hormuz remains effectively closed.

The macro tension this month is straightforward but uncomfortable: an oil-driven inflation impulse landing into a labour market that surprised to the upside in March, while Q1 growth came in soft.

The Federal Reserve has revised its 2026 PCE inflation projection to 2.7% and continues to signal one cut this year, though the timing remains contested. With no FOMC scheduled in May, every high-impact release may carry more weight than usual into the June meeting.

Growth: business activity and demand

The growth picture entering May is mixed. The Q1 GDP advance estimate landed on 30 April, while softer retail sales and inventory data have made the demand picture harder to read.

ISM manufacturing has been a quieter source of optimism, with recent prints holding in expansionary territory. Energy costs and tariff effects are now the variables most likely to shape the next move in business activity.

Labour: payrolls and employment data

The April Employment Situation is one of the most concentrated risk events of the month. March payrolls came in stronger than expected, while earlier data revisions left the trend less clear. April will help show whether the labour market is genuinely re-accelerating or simply absorbing seasonal noise.

Inflation: CPI, PPI and PCE

April inflation lands as the most market-relevant data block of the month. The March consumer price index (CPI) rose 3.3% over the prior 12 months, with energy up 10.9% on the month and gasoline up 21.2%, accounting for almost three quarters of the headline increase. With Brent holding near US$105 to US$108 through the latter half of April, a further passthrough into the April CPI energy component looks plausible.

Core CPI and core personal consumption expenditures (PCE) remain the better read on underlying trend.

Policy, trade and earnings

May has no FOMC meeting, so policy attention shifts to Fed speakers, the path of any leadership transition, and the dominant geopolitical backdrop. Chair Jerome Powell's term concludes around the middle of the month. President Donald Trump has nominated Kevin Warsh as the next Fed chair, with the Senate Banking Committee having held a confirmation hearing.

The Iran conflict, now in its ninth week, remains the single largest source of macro tail risk, with the Strait of Hormuz blockade and stalled US-Iran talks setting the tone for energy markets and broader risk appetite. Q1 earnings season is in its peak weeks, with peak weeks expected between 27 April and 15 May, and 7 May the most active reporting day.

What to monitor this month

• Iran-US negotiations and the operational status of the Strait of Hormuz
• Fed speakers and any change in tone between meetings
• Q1 earnings, especially from retail, energy and cyclical names
• Weekly EIA crude inventories
• Any tariff-related announcements that may affect inflation expectations

Bottom line

May is not a quiet month just because there is no FOMC meeting. Payrolls, CPI, PPI, retail sales and PCE all land before the June policy decision, while oil remains the dominant external shock.

For markets, the key question is whether the data points to a temporary energy-driven inflation lift, or a broader inflation problem arriving at the same time as softer growth. That distinction may shape the next major move in bonds, the US dollar, gold and equity indices.

As we enter May 2026, the global FX market is attempting a difficult high-wire act. April was defined by "civilisation-ending" ultimatums and a Pakistani-brokered ceasefire that sent Brent crude on a rollercoaster from US$110 down to the mid-US$90s.

For traders, the connect-the-dots moment is this: the peak panic around the Iran conflict has faded, but it has been replaced by a structural regime shift. Markets may be moving from a war premium to a transition premium.

With Kevin Warsh nominated to take the Fed chair in mid-May and the Bank of Japan (BOJ) staring down a generational ceiling near 160.00, the calm in the headlines may be masking a major repricing of global yield differentials.

Strongest mover: US dollar (USD)

The US dollar enters May with a new kind of ballast. While the ceasefire reduced the immediate need for a panic hedge, the nomination of Kevin Warsh, widely viewed as an inflation hawk, has provided a structural floor for the greenback.

Markets may be front-running a shift in Fed independence alongside a stricter approach to inflation targeting. That combination - a credible hawkish signal at the policy level - tends to support the dollar even when the near-term data is mixed.

Weakest mover: Japanese yen (JPY)

If you wanted to design a currency to struggle in 2026, the yen fits the brief. Despite the "TACO" script, short for "Trump always chickens out", providing some relief to equities, the mathematical pressure on JPY remains significant.

The BOJ continues its delicate exit from long-term stimulus, but this process has been slower than many anticipated. The USD/JPY pair remains particularly sensitive to US Treasury yields. A move above 4.5% on the US 10-year could put additional pressure on the BOJ to act.

The pair to watch: AUD/USD

The Australian dollar sits at an interesting intersection.

Inflation in Australia has proven more persistent than in other developed economies, which may encourage the Reserve Bank of Australia (RBA) to maintain a cautious, higher-for-longer stance. This could create potential yield support for the AUD that does not exist in the same way for currencies where central banks are already cutting.

What could support the AUD

At the same time, the AUD remains deeply exposed to commodity markets and Chinese demand.

Iron ore and copper are critical inputs for the Australian economy. If global demand remains stable, the Australian dollar could find further support. Any shift in Chinese industrial data will be a key signal for this pair.

The EUR/USD comparison

The EUR/USD dynamic also warrants attention.

The European Central Bank (ECB) is balancing a cooling economy with regional inflation targets. Growth in Germany remains a concern for the eurozone, and markets are pricing in a potential rate cut that could narrow the interest rate differential with the US.

That shift may cause the euro to soften relative to the US dollar. Political developments within the European Union, particularly any fiscal disagreement, could add to volatility in that pair.

Data to watch next

Four events stand out as the clearest catalysts. Each has a direct transmission channel into rate expectations and, by extension, into forex CFDs.

Key levels and signals

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The FX market heading into May is being shaped by a normalisation trap. Traders may be betting that the worst of the energy shock is over, but a hawkish Fed leadership transition could still re-steepen the yield curve. Moves are likely to remain highly data-dependent and sensitive to overnight gaps from the Middle East, where geopolitical shifts can gap markets before the next session opens.

The oil market has a habit of looking settled right before it stops being settled. That is the setup now.

Traffic through the Strait of Hormuz has dropped sharply as the conflict around Iran has intensified, and more vessels are going dark by switching off AIS, or Automatic Identification System, signals that usually show where ships are moving. Hormuz is not just another shipping lane. It is one of the world’s most important energy chokepoints, so when visibility starts to disappear, supply risk moves back to the centre of the conversation.

Why this matters now

This matters for a couple of reasons.

The headline move is one thing. The market implication is another. Oil is not only about how many barrels exist, rather, it is also about whether those barrels can move, who is willing to insure them, how long buyers are prepared to wait and how much extra risk traders feel they need to price in.

Right now, three things are colliding at once: disrupted shipping, fragile diplomacy and a market that is already leaning heavily in one direction. That combination can make Brent move faster than the fundamentals alone would normally suggest.

What is driving the move

1 Supply visibility is deteriorating

The first driver is simple. The market can see less, and that tends to make it more nervous.

Transit through Hormuz has fallen sharply, while a growing share of traffic has involved ships that are no longer broadcasting standard tracking signals. In plain English, fewer vessels are moving normally through a critical corridor, and more of the activity is becoming harder to track. That does not automatically mean supply is about to collapse. But it does mean uncertainty is rising.

2 Iran’s storage buffer may be limited

The second driver is Iran’s export and storage constraint.

Onshore storage capacity is estimated at about 40 million barrels, and the market is watching what some describe as a 16-day red line. That is the point at which a prolonged export disruption could begin forcing production cuts to avoid damage to reservoirs. For newer readers, the takeaway is straightforward. If oil cannot leave storage for long enough, the problem may stop being about delayed exports and start becoming a genuine supply issue.

3 Positioning could amplify the move

The third driver is positioning, which is just market shorthand for how traders are already set up before the next move happens.

In this case, speculative crude positioning looks heavily one-sided. That matters because when a market is leaning too far in one direction, it does not take much to trigger a sharp adjustment. A fresh geopolitical shock could force traders to move quickly, and once that starts, price can run harder than the underlying news alone might justify.

Why the market cares

An oil shock rarely stays contained inside the energy market.

Higher crude prices can start showing up in freight, manufacturing and household energy bills. That means inflation expectations can start creeping higher again. Central banks are already trying to manage a difficult balance between sticky inflation and softer growth, so higher oil can make that job harder.

And this is not just a story about oil producers getting a lift. Airlines, transport companies and other fuel-sensitive businesses can come under pressure quickly when energy costs rise. Broader equity markets may also have to rethink the policy outlook if higher oil keeps inflation firmer than expected.

The ripple effects go well beyond oil

There is also a currency angle, and it is less straightforward than it first appears.

Commodity-linked currencies such as the Australian dollar often get support when raw material prices rise. But that relationship is not automatic. If oil is climbing because global demand is improving, that can help. If it is climbing because geopolitical risk is spiking, markets can shift into risk-off mode instead, and that can weigh on the Australian dollar even as commodity prices rise.

That is what makes this kind of move more interesting than it looks at first glance. The same oil rally can support one part of the market while putting pressure on another.

Assets and names in the frame

Brent crude remains the clearest read on broad supply risk. If traders want the cleanest expression of the headline story, this is usually where they look first.

• ExxonMobil is one of the more obvious names in the frame. Higher oil prices can support realised selling prices and near-term earnings momentum, although it is never as simple as oil up, stock up. Costs, production mix and broader sentiment still matter.
• NextEra Energy adds another layer. This story is not only about fossil fuels. When energy security becomes a bigger concern, the case for domestic power resilience, grid investment and alternative generation can strengthen as well.
• AUD/USD is another market worth watching. Australia is closely tied to commodity cycles, so stronger raw material prices can sometimes support the currency. But if markets are reacting more to fear than growth, that usual tailwind may not hold.

For newer readers, the key point is that oil moves do not spread through markets in a neat, predictable line. They ripple outward unevenly, helping some assets, pressuring others and sometimes doing both at the same time.

What could go wrong

A strong narrative is not the same as a one-way trade.

A ceasefire could stabilise shipping flows faster than expected. OPEC+ could offset some of the tightness by lifting production. Demand data from China could disappoint, shifting the focus back to weak consumption rather than constrained supply. And if the geopolitical premium fades, oil could pull back more quickly than the current mood suggests.

For newer readers, the takeaway is simple. Oil rallies can be real without being permanent. A move may be justified in the short term by disruption risk, then reverse quickly if those risks ease or if demand softens.

The market is no longer pricing oil in isolation. It is pricing visibility, transport security and the risk that supply disruption spills into inflation, currencies and broader risk sentiment.

That is why Hormuz matters, even for readers who never trade a barrel of crude themselves.