Currency markets took traders on a roller coaster midweek, as the euro exploded higher, the yen bucked trends, and the Canadian dollar roared. A broad U.S. dollar sell-off – fueled by a record U.S. debt downgrade and Fed caution – collided with surging oil and inflation surprises across the world. The result? EUR/USD spiked, USD/JPY zigzagged sharply, and USD/CAD slid (see charts below). We unpack these moves using the M5 charts and the key events of May 18–22, 2025. Dramatic U.S. news sent bonds, stocks and the dollar reeling, while Japan’s inflation shock and Middle East oil jitters lifted the yen and loonie.
EUR/USD: Euro Rallies on Dollar Weakness
Monday’s trading saw EUR/USD rocket from ~1.1180 to ~1.1280, as a bruised dollar came under fire. Traders noted a “sell‑America” theme – U.S. bonds, stocks and the dollar all tumbled after Moody’s downgraded U.S. debt. That shock coincided with surprisingly strong Eurozone signals (Germany’s ZEW index jumped to +25.2 in May) and receding U.S.‑China trade fears, giving euro bulls a green light. EUR/USD later retraced some gains (around 1.1225 on late Tuesday) before rebounding near 1.1278 by the close. In short, euro power met dollar weakness – global news fed the rally, then profit-taking checked it.
USD/JPY: Yen Roars on Inflation and Risk‑Off
The yen’s safe‑haven charge was intense. USD/JPY plunged from roughly 145.50 down to 144.00 early Tuesday, reflecting both the weak dollar and Japan’s inflation shock. Core CPI in Tokyo jumped 3.4% in April, reinforcing bets the BOJ will tighten sooner. U.S. economic anxieties added fuel: as U.S. credit jitters spread, the yen snapped up on risk‑off flows. By midday, USD/JPY bounced back toward 145.00 amid profit‑taking in Tokyo markets, but it slid again into the close. The net: yen rallied for most of Tuesday, leaving the pair near 144.46 by night – about a 1% move in yen’s favor on the day.
USD/CAD: Loonie Climbs on Oil and ‘No‑Cut’ BoC Outlook
The loonie enjoyed a powerful run. USD/CAD drifted lower all week, from ~1.397 on Monday morning to ~1.392 by Tuesday evening. Oil prices stabilizing near $65/barrel helped, but the bigger story was Canada’s inflation. April CPI fell to 1.7% YoY (thanks to subsidy cuts) while core inflation accelerated above 3%. Traders slashed odds of more Bank of Canada rate cuts (swap bets for a June cut plunged from ~65% to 40%). In short, higher oil and a “no‑cut” BoC stance turbocharged CAD, sending USD/CAD sharply lower. The chart shows the dollar sliding after each U.S. session open as Canadian fundamentals held firm.
In all, May 21’s action highlights how policy and politics drove FX fireworks. The dollar’s slide – a mix of U.S. rating drama and Fed “patience” – let majors like EUR and CAD rally, while haven demand and inflation narratives swung the yen. Traders will eye Thursday’s U.S. PMI releases and Friday’s Eurozone inflation for the next moves in this volatile dance.