A retrospective on a month that flipped the rates narrative. Markets opened May hoping the worst of the Iran shock was behind them; a cascade of US inflation data said otherwise. Divitae Assets looks back at May.
This monthly look-back is contributed by Divitae Assets, a quantitative trading firm. The full May report — including independently verified strategy performance — is available at divitaeassets.com.
Jobs days, CPI prints and central-bank meetings rarely line up as cleanly as they did in May 2026. The month opened with the US–Iran conflict in its third month and a tentative recovery in risk appetite. Within two weeks that optimism had collided with the hottest US inflation data in nearly three years, and the entire rates narrative flipped from "how many cuts" to "could they actually hike." Here is the institutional read of the month, with every macro figure checked against the official source.
The dollar began May in tentative territory, the DXY oscillating around 98.00–98.50 as safe-haven demand from a still-contested Strait of Hormuz competed with diplomatic signals. A reported US–Iran memorandum of understanding on 6 May briefly drained the safe-haven premium and pushed the index toward 97.50. From 8 May the picture turned: fresh military exchanges near the Strait and a rejected peace proposal snuffed out the optimism. But the decisive driver was not the war itself, it was what the war was doing to prices.
April CPI, released 12 May, accelerated to 3.8% year-on-year against a 3.7% forecast, its highest since 2023, with core firming to 2.8%. The producer-price report the next day was the sharper shock: PPI surged 1.4% on the month to a 6.0% annual rate, the fastest since 2022, with energy at the root of the gain. Retail sales held firm, removing any excuse for the Fed to look through the move.
Two consecutive upside surprises on consumer and producer prices, with energy as the driver and the Iran war keeping energy bid, told markets this was not transitory noise. It was a supply-driven inflation impulse the Fed could not ignore.
By mid-May the CME FedWatch tool was pricing a 42% probability of a rate hike by December, a dramatic reversal from the two cuts that had been expected before the war. The hawkish tilt was institutional, not just market-driven: Kevin Warsh was confirmed as Fed Chair on 13 May in a divisive 54–45 Senate vote, succeeding Jerome Powell, and FOMC minutes on 20 May showed a majority of officials ready to raise rates if inflation persisted. The 10-year Treasury yield closed at 4.59% on 15 May, and April PCE, the Fed's preferred gauge, confirmed the picture at 3.9% headline, the highest since 2023.
Away from the US, policy paths split, and that is where the cleanest currency trends lived. The Reserve Bank of Australia raised its cash rate 25bp to 4.35% on 5 May in an 8–1 vote, its third consecutive hike of the year, with headline inflation running at 4.6% in the year to March. The Reserve Bank of New Zealand held the OCR at 2.25% on 27 May in a razor-thin decision settled by the Governor's casting vote, but with guidance signalling it was close to tightening. The result was a sharp late-month repricing across the antipodean crosses, with AUD/NZD the most volatile pair on the board.
The cross-asset story was counterintuitive. Gold closed down roughly 1.8%, dipping below its 200-day moving average for the first time since 2023. The very war that should have supported bullion instead lifted inflation, the dollar and real yields, and the rising opportunity cost of holding a non-yielding asset won out. Gold was trapped between a geopolitical premium it could not capture and a tightening cycle it could not escape.
Crypto fared worse. Bitcoin fell about 4% to around $71,000, a seven-week low, as spot-ETF redemptions accelerated, including a record single-day outflow of $635m on 13 May and more than $1bn across the week of 11–15 May, the largest weekly outflow since February. Ethereum underperformed sharply, down roughly 11.5% to near $1,960, its spot ETFs enduring a multi-day outflow streak. Capital clearly preferred Bitcoin over Ethereum amid the uncertainty.
A month like May rewards process over reflex. The old growth reflex, strong data lifts the dollar and weak data sinks it, was the wrong lens; the dollar's resilience was an inflation story, and the inflation story was an oil story. On the terminal we tracked the inflation prints against the Fed's reaction function, the rate-differential trends out of the RBA and RBNZ, and the single swing factor that could flip the whole picture: the Strait of Hormuz. A durable reopening would pull crude lower, ease the inflation panic and take the hawkish premium out of the dollar. Until then, dollar dips have been tactical, not structural.
May 2026 was a repricing month. Inflation, not growth, set the tone; a hawkish Fed under a new chair anchored the dollar; diverging central banks opened the clearest FX trends; and the classic safe havens, gold and crypto, both sold off into a tightening cycle. The macro calendar into June stays loaded, and the one headline that matters most is still the one coming out of the Persian Gulf.
Divitae Assets is a quantitative trading firm that develops and operates systematic, algorithmic strategies across FX, commodities and crypto. Its D-series systems — ZEUS, ARES, HERMES and KRONOS — are independently verified to GIPS® standards by Alpha Performance Verification Services, with full performance and methodology published openly. The figures in this look-back are drawn from those records. Read the complete May 2026 market report, explore the technology behind the strategies, or learn more at divitaeassets.com.
Sources: U.S. Bureau of Labor Statistics (CPI, PPI, employment); Bureau of Economic Analysis (PCE); U.S. Federal Reserve; Reserve Bank of Australia; Reserve Bank of New Zealand; CME FedWatch; Bloomberg. Figures as officially reported and subject to revision. This look-back is contributed by Divitae Assets and published on TTerminal; it is not investment advice.
The complete May market report from Divitae Assets, with macro context and independently verified strategy performance, in English and Czech.
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