FX Daily: More bond fuel for the dollar rally in Daily Currencies Ratings 21/05/2026 USD: Bond sell-off keeps offering support Higher real US yields are back to driving dollar strength. Yesterday, we sensed that market patience for any improvement in the Gulf situation was thin, and the latest headlines did not dent the bearish bond momentum. Our colleague Padhraic Garvey examines this rough period for Treasuries here. He sees more overshoot risk for yields in the near term, and a risk that a de-escalation may still leave real yields comparatively higher. It’s worth reiterating that, unlike in 2025, this sell-off is being driven by inflation concerns rather than fiscal fears, making it unambiguously USD positive. When we argued in February that the dollar’s decline was cyclical rather than structural, we constructed a USD safe haven gauge combining the dollar’s correlation with US equities and with 10-year Treasury yields. That measure now points to the strongest safe haven appeal for the dollar since late 2022, and the second-highest reading in our dataset back to 2005. As a result, upside risks to USD remain dominant unless genuinely constructive news emerges from the Gulf. Reports yesterday that NATO is considering intervention in the Strait of Hormuz to support vessel passage failed to lift risk assets in any meaningful way. A break above 99.50 in DXY remains a realistic outcome even in the absence of renewed military escalation. Brent is trading above $110 this morning, with scope for additional volatility around today’s EIA weekly release. The consensus looks for crude inventory drawdowns of 2.8m barrels. Last week’s drawdowns were already sizeable at 4.3m, and including SPR releases implied a total inventory decline of 12.9m. Another event to watch today is the release of April’s FOMC minutes, which will shed more light on the reasoning for the three dissenters who preferred a less dovish message. Any hints that went as far as adding rate hikes to the discuss