Forex Week Ahead (May 19-23): FOMC Minutes, Warsh's First Week, and PMI Data Under Scrutiny as Dollar Holds 99.28

The forex market enters a critical transition week as newly confirmed Federal Reserve Chair Kevin Warsh begins his tenure with minimal economic data to distract from Wednesday's release of the April FOMC meeting minutes. The May 19-23 calendar is notably light—putting the spotlight squarely on the minutes from Jerome Powell's final meeting as Fed chair, which featured a historic 8-4 dissent vote, the most contentious decision since 1992.

FOMC Minutes: Decoding the Historic Dissent

Wednesday's 2:00 PM ET release of the April FOMC minutes represents one of the final chapters of the Powell era and potentially the opening act of the Warsh regime. The April 29 meeting saw the Federal Reserve hold its benchmark federal funds rate steady at 3.50%-3.75%, but the decision was anything but unanimous.

Four FOMC members dissented—the highest number since October 1992—with three officials (Chicago Fed's Austan Goolsbee, Minneapolis Fed's Neel Kashkari, and Cleveland Fed's Beth Hammack) objecting to the statement's language implying the next move would be a rate cut. A fourth dissenter, Trump appointee Stephen Miran, voted in favor of an immediate 25-basis-point cut, highlighting the deep divide within the committee.

According to Deutsche Bank economist Amy Yang, "Three FOMC voters objected to the April FOMC meeting statement language implying the next move would be a cut, and multiple officials stressed that recent inflation—particularly services, tariffs, and energy—has 'not been great,' pushing out the timeline for lower rates."

Powell acknowledged during his final press conference that the debate around forward guidance was "much closer" than at the March meeting, while emphasizing that "nobody's calling for a hike right now." However, the hawkish voices on the committee have "underscored persistent and, in some cases, broad based cpi" title="Understanding inflation and CPI in forex">inflation pressures," setting the stage for what could be a difficult first year for Warsh.

Traders will scrutinize the minutes for details on:

• The specific language disputes that triggered the dissents
• Committee members' inflation projections and oil price scenarios
• Discussion of potential rate hike conditions
• How the Middle East conflict and tariff impacts are being modeled
• Any hints about the "neutral rate" debate

Kevin Warsh's First Full Week: Navigating a Divided Fed

Warsh, whose Senate confirmation was approved May 13, inherits a Federal Reserve deeply divided on interest rate policy amid persistently elevated inflation and geopolitical uncertainty. The April CPI reading of 3.8%—well above the Fed's 2% target—has crushed market expectations for 2026 rate cuts and forced traders to price in a 44% probability of a rate hike by December 2026.

The Dollar Index surged to 99.284 on the hot inflation print, with USD/JPY testing the critical 158.77 level that previously triggered Japanese intervention. Meanwhile, 10-year Treasury yields have climbed above 4.59%, and West Texas Intermediate crude is trading above $105 per barrel on Iran conflict fears.

With President Trump having called for immediate rate cuts, Warsh faces the delicate task of maintaining Fed independence while navigating political pressure, a hawkish committee, and inflation that refuses to cooperate. Markets are watching for any public comments or speeches from Warsh this week, though none are currently scheduled.

Thursday's PMI Data: The Week's Only Major Market Mover

The economic calendar's most significant data release comes Thursday, May 21, at 9:45 AM ET when S&P Global releases flash PMI data for May covering both manufacturing and services sectors. These early purchasing managers' index readings often move markets as they provide the first glimpse of economic momentum for the month.

The PMI reports will be particularly scrutinized for signs of:

• Services sector resilience amid rising interest rates and oil prices
• Manufacturing stress from tariffs and supply chain pressures
• Employment components as labor market stabilization continues
• Input cost pressures that could signal sticky inflation ahead
• New orders and forward-looking indicators for Q2 growth

April's PMI readings showed the economy maintaining expansion, but any significant deterioration could reignite rate cut speculation. Conversely, stronger-than-expected data would bolster the hawkish case for keeping rates elevated—or even considering hikes if inflation doesn't moderate.

Other Data Releases: Housing, Jobs, and Sentiment

While the calendar is light, several secondary indicators will provide context:

Monday, May 19: Pending home sales for April (10:00 AM ET) will show whether higher mortgage rates driven by rising Treasury yields are cooling demand.

Thursday, May 21: Alongside the PMI data, markets will digest:

• Weekly jobless claims (8:30 AM ET) for signals of labor market stability
• Housing starts and building permits (8:30 AM ET) to gauge construction sector health
• Philadelphia Fed Manufacturing Index (8:30 AM ET) for regional factory activity

Friday, May 22: The University of Michigan Consumer Sentiment Index (revised) and the Conference Board's Leading Indicators Index will round out the week at 10:00 AM ET.

Currency Pair Positioning: What to Watch

EUR/USD is trading around 1.1626 after breaking below key support, with the euro under pressure from weak European growth prospects and a surging dollar. The next major support level sits at 1.1600, while any hawkish surprises from the FOMC minutes could push the pair toward 1.1500.

USD/JPY remains the most watched pair, hovering near 158.73—uncomfortably close to the intervention zone that triggered Japanese Ministry of Finance action earlier this month. With the 300-basis-point interest rate differential between the US and Japan continuing to weigh on the yen, traders are on high alert for both verbal and actual intervention. Any suggestion in the FOMC minutes that US rates could stay higher for longer would put immediate pressure on the 159.00 level.

GBP/USD is testing support at 1.3526 as sterling faces headwinds from dollar strength and rising oil prices. The 1.3500 level is critical—a break below would target 1.3400.

USD/CAD is consolidating near 1.3750, with oil price strength above $105 providing some support for the Canadian dollar. However, if WTI extends gains toward $110 on escalating Iran tensions, the loonie could face conflicting pressures from both commodity strength and global risk-off flows.

Market Sentiment: Positioned for Volatility

Heading into the week, market positioning reflects caution and uncertainty:

• The VIX volatility index is elevated at 18.43, up 6.78% from Friday's close
• Gold has tumbled to $4,547 after a $200+ selloff on the hot CPI print and rising Treasury yields
• Bitcoin is stabilizing around $78,348 after crashing from $80,000+ levels
• US equity markets closed Friday in the red, with the S&P 500 down 1.24% as bond yields surged

The cross-asset correlation suggests markets are pricing in a stagflation-lite scenario: elevated inflation keeping rates high while growth concerns persist. Any dovish tilt from the FOMC minutes—suggesting the Fed might tolerate slightly higher inflation to support growth—could trigger a sharp reversal in dollar strength.

Geopolitical Wild Cards: Iran and Oil Markets

Beyond the data and Fed minutes, geopolitical developments remain a critical variable. WTI crude's surge above $105 reflects ongoing concerns about the Strait of Hormuz, through which roughly 20% of global oil passes. President Trump has suggested the US will begin guiding neutral vessels through the strategic waterway, but Iran has warned that any US involvement would be viewed as a ceasefire violation.

Any escalation in Middle East tensions could send oil prices toward $110-115, reigniting inflation fears and forcing the Fed to maintain a hawkish stance even as growth concerns mount. Conversely, progress toward a diplomatic resolution could ease commodity pressures and give the Fed more flexibility.

Trading Strategy: Patience and Range Management

For forex traders, this week demands patience and disciplined risk management:

• Avoid aggressive positioning ahead of Wednesday's FOMC minutes—liquidity could be thin
• Watch for volatility spikes at 2:00 PM ET Wednesday when the minutes drop
• Thursday's PMI data at 9:45 AM ET is the only scheduled "hot" data point—expect movement
• USD/JPY intervention risk remains elevated above 158.50
• Dollar momentum could extend if FOMC minutes show broader hawkish sentiment than expected

Key technical levels to monitor:

• Dollar Index (DXY): Resistance at 99.50, support at 98.80
• EUR/USD: Support at 1.1600, resistance at 1.1700
• USD/JPY: Intervention zone at 158.50-159.00, support at 157.50
• GBP/USD: Critical support at 1.3500, resistance at 1.3650

The Bottom Line: Warsh's Welcome-to-the-Fed Week

Kevin Warsh couldn't have asked for a more challenging inauguration. He inherits a Federal Reserve deeply divided on the path forward, inflation running hot at 3.8%, oil prices surging on geopolitical risk, and political pressure from the White House for immediate rate cuts. The April FOMC minutes will reveal just how fractured the consensus has become—and whether the hawkish dissent represents a growing movement or a temporary blip.

For currency traders, the light calendar means technical levels and sentiment will dominate until Wednesday afternoon. The dollar's rally to 99.28 has room to extend if the minutes confirm a hawkish shift, but any hint that the Fed might pivot toward accommodation could trigger a sharp reversal across risk assets.

Thursday's PMI data provides the only hard economic read of the week. If services and manufacturing hold up despite higher rates and oil prices, it strengthens the case for rates staying higher for longer. If cracks appear, it gives Warsh ammunition to resist calls for hikes and potentially set the stage for eventual cuts in late 2026 or 2027.

In short: light on data, heavy on implications. Welcome to the job, Chairman Warsh.