13. 1. 2026 - Josef Brynda
USD
CAD
EUR
GBP
AUD
NZD
EURUSD
While the Fed is holding rates at 3.75% and is unlikely to cut them due to inflationary pressures from new tariffs and a desire to demonstrate its independence, the ECB has rates much lower at 2.15%. This differential (carry trade) clearly incentivizes investors to hold Dollars. Although European data shows signs of stabilization, the U.S. economy remains more robust. At the same time, however, interference with the Fed and its independence adds a risk premium to U.S. Treasuries, putting downward pressure on the U.S. Dollar. If the relationship between the U.S. government and the Fed is successfully reconciled, the USD could regain its strength.
USDCAD
The Canadian Dollar remains under pressure due to ongoing trade uncertainty and relatively low oil prices. It is further weighed down by rising unemployment and slower job growth; although the Bank of Canada is expected to hold rates steady at its next meeting, a future rate hike is far from certain, especially when compared to the Reserve Bank of Australia. Instead, a neutral to slightly dovish rhetoric is anticipated, which continues to exert downward pressure on the Canadian Dollar.
AUDUSD
Although Australian households continue to spend, President Trump’s imposition of 25% tariffs on Iran’s trading partners represents a direct threat to China, and consequently, to Australian commodity exports. In an environment of global trade war and geopolitical tension, investors typically exit "high-beta" risk currencies, such as the AUD, and move capital into the safety of U.S. Treasuries. The Dollar is thus set to benefit from risk aversion, while the "Aussie" will suffer from fears of a Chinese slowdown.
AUDNZD
If tariffs were to be imposed on China, the Australian Dollar could face steeper losses than the New Zealand Dollar. At the same time, business confidence in New Zealand has surged to a 10-year high, signaling a recovery of the New Zealand economy. It must be noted, however, that any stimulus measures in China could drive up the price of iron ore; similarly, if the Reserve Bank of Australia were to surprisingly hike rates at its next meeting, the Australian Dollar would regain strength.
EURGBP
Due to the Euro's weakness and market expectations regarding a more stable policy from the Bank of England, the pair faces the risk of further decline. A common argument is that the BoE's dovish rhetoric is already priced in; therefore, any shift in rhetoric or a drop in UK unemployment would likely extend the pair's downtrend.
AUDCAD
Under otherwise equal conditions, the Australian Dollar should be the favorite here, as the interest rate differential, combined with speculation of a rate hike in Australia plays in its favor. However, as previously mentioned, in the event of an escalated dispute between the U.S. and China, the AUD could face significant losses.
NZDCAD
New Zealand is likewise speculating that the next interest rate adjustment will be a hike; at the same time, the surge in business confidence on the New Zealand side is raising the stakes for this decision. As a result, the New Zealand Dollar could maintain its ground and hold higher against the Canadian Dollar.
12. 1. 2026 - Josef Brynda
The legal storm around the Fed has been building along two parallel tracks, political pressure on Federal Reserve Chair Jerome Powell and long running disputes between banks and the regulator. In the political arena, the costly renovation of the Fed headquarters in Washington, often cited at about 2.5 billion dollars, keeps returning as a convenient trigger, along with claims that Powell downplayed certain elements of the project during testimony before the Senate. That then became an easy narrative to sell, wasteful spending plus an unwillingness to cut rates, which the White House and its allies use as ammunition in a fight over the independence of monetary policy.
Concrete legal moves on this track arrived step by step, first political calls for investigations and a criminal referral, then public talk by Donald Trump about suing Powell for gross incompetence linked to the renovation, and finally escalation in the form of a grand jury subpoena and Powell stating that the Department of Justice contacted the Fed and that he faces the risk of criminal charges. Powell frames this as politically motivated pressure aimed at pushing the Fed into faster rate cuts.
The second wave is less sensational but legally very important, lawsuits aimed at the Fed as an institution, mainly from banks and business associations. At the end of 2024, major banking groups and chambers of commerce filed suit challenging the lack of transparency and the Fed’s approach to annual stress tests, arguing that the framework violates administrative law requirements under the Administrative Procedure Act. This is not primarily about Powell personally, but about how the Fed sets bank capital requirements and how much of a black box its models and scenarios are.
Some Republicans criticize the use of the justice system as leverage. Senator Thom Tillis was a prominent example, warning that trust in institutions could be undermined and signaling he might block Fed nominations until the issue is clarified. Other lawmakers joined in, and some Democrats as well, including Elizabeth Warren, spoke about an unacceptable intrusion into the central bank.
There are three plausible outcomes:
1) The criminal track fades or gets postponed, while reputational damage remains.
2) The second is a prolonged legal struggle that affects markets and perceptions of how independently the Fed can operate.
3) The third is systemic change, for example stronger pressure for greater transparency, since the Fed has already faced scrutiny and proposals for adjustments around stress tests, and a sharper definition of the limits of executive power over the Fed.
We could register the market impact immediately. For example, the risk premium on bonds increased and the dollar lost some strength, while the euro and the Swiss franc have benefited. It will be important to watch how this develops in parallel with the situation in Venezuela and Iran, which in turn weighs on risk on currencies. The biggest winner is clearly gold, as the combination of concern about Fed independence and the geopolitical backdrop is undoubtedly contributing to its rise.
6. 1. 2026 - Josef Brynda
Venezuela has moved into the spotlight of global markets over the past three days due to an exceptionally tense turn of events. Following a U.S. military action and the detention of President Nicolás Maduro, the United States has simultaneously intensified pressure on Venezuela’s oil sector. President Donald Trump has also publicly suggested the possibility of a second strike if remaining regime officials fail to comply with U.S. demands. This combination immediately reminds investors of a key factor that moves prices across asset classes, namely geopolitical risk.
The most visible impact is on oil, which is the main source of Venezuela’s revenues. According to shipping data, on January 6 Venezuela’s main ports entered a fifth consecutive day without oil deliveries to customers in Asia, one of the largest buyers of Venezuelan crude. Due to restricted exports, the state oil company PDVSA is beginning to face storage constraints. As a result, it is curbing production and asking some joint venture partners to reduce output.
At the same time, the market is closely watching various exceptions and workarounds. Chevron, a key PDVSA partner operating under a U.S. license, resumed exports to the United States after a brief pause and has effectively become, in recent weeks, the only company capable of exporting Venezuelan oil smoothly under the current restrictions. In parallel, there are reports of tankers sailing toward China in so called dark mode with transponders switched off. This further increases uncertainty about how much Venezuelan oil is actually reaching the market.
Paradoxically, oil prices have not reacted with panic so far. On Tuesday, January 6, oil prices were actually declining. Alongside the political shock, traders were mainly focused on the perception that the global market is sufficiently supplied and that demand is not overheating. In other words, even a major event in Venezuela is currently unfolding in an environment where markets are more concerned about excess supply and slower demand growth.
This is where the link to currencies becomes relevant. Foreign exchange markets are reacting to developments in Venezuela primarily through investor sentiment and risk appetite rather than through oil alone. When fears of escalation dominate, such as further strikes, tighter blockades or greater regional instability, investors typically seek refuge in safe haven currencies. These include the U.S. dollar, the Japanese yen and the Swiss franc, while riskier emerging market currencies tend to be sold. When the situation calms or a clearer political transition scenario emerges, part of this safety premium fades and markets return to more conventional drivers such as interest rates, inflation and employment data.
Another important channel is debt and confidence. Venezuelan sovereign bonds and PDVSA bonds have risen sharply in recent days, as investors are betting that political change could open the door to debt restructuring and a broader return of foreign companies to the oil sector. While this is not a foreign exchange event on the scale of a central bank decision, it acts as a thermometer of risk appetite in emerging markets. When such high risk bonds perform well, it usually supports parts of the emerging market currency space. When sentiment turns, emerging market currencies are often among the first to suffer.
22. 12. 2025 - Josef Brynda
AUD is currently driven mainly by the commodities story (gold/iron ore/energy), China (credit momentum and stimulus expectations), and global “risk-on/risk-off.” In the short term, AUD is supported by record-high precious metals and a notable weakening of JPY on the crosses (carry). A constraint, however, is that the RBA commodity index in AUD fell month-on-month in December, and some energy components remain lower year-on-year.
headlines for AUD
RBA Index of Commodity Prices: in AUD terms, -0.5% m/m in December, -4.1% y/y (AUD terms) – a mild headwind for AUD via terms of trade.
Australia raised its forecast for mining/resource receipts thanks to record gold and resilient iron ore (exactly the kind of headline that helps AUD).
China kept the LPR unchanged (7th month in a row) – a smaller “stimulus impulse” typically makes AUD more uncertain.
The PBOC launched a one-off “credit repair” initiative (wiping minor delinquencies once repaid) – markets read this as an attempt to revive credit, which is supportive for AUD via China.
JPY remains weak even after a BoJ hike; USD, EUR and AUD all strengthened versus JPY – carry conditions improved for AUD.
“AUD and NZD near yen highs” – ongoing outflows from JPY keep AUD/JPY elevated.
Asian equities extended Wall Street’s gains; a risk-on tone is typically a plus for AUD.
Gold above $4,400 (record) on Fed-cuts bets – commodity sentiment supports AUD as a “commodity FX.”
Oil rising after U.S. action around Venezuela increases the broader geopolitical “beta” of commodities – the effect on AUD is mixed, but often supportive in risk-on.
Market wrap: weak JPY and stronger risk assets keep commodity currencies (including AUD) relatively firm on the crosses.
USD is revolving around the Fed path (debate over whether inflation is “done”) and how quickly rates will fall versus the rest of G10. Precious-metals strength (markets pricing more cuts) is a headwind for USD, while relatively firm data and yields provide support. In the very near term, USD/JPY (BoJ + potential intervention) is also a major driver.
headlines for USD
Fed (Hammack): “the fight against inflation isn’t won” and uncertainty around the inflation outlook – the market trims cuts expectations.
Gold broke above $4,400 on Fed-cuts bets and a softer USD – a clear “USD-negative” signal via sentiment.
Record gold/silver on expectations of lower U.S. rates and geopolitics – the dollar loses some of its safe-haven monopoly.
U.S. existing home sales rose slightly in November – supports the narrative the economy isn’t “switching off.”
JPY moves: Japanese officials again warn against “excessive” FX moves – USD/JPY remains the key volatility channel.
JPY at record lows (also versus EUR/CHF) after a BoJ hike without clear forward guidance – USD/JPY supported by the rate differential.
“Take Five / year-end”: after delays, a cluster of U.S. macro prints (GDP/durable goods/confidence) is due – higher risk of short squeezes in USD.
November inflation plus data distortions after shutdown/delays – markets debate the reliability of signals for the Fed.
Oil rises after U.S. action around Venezuela – secondary impact on USD via risk and inflation expectations.
“Major central banks signal the end of the cut cycle” – USD is priced on a relative basis (who cuts more/less).
CAD has recently been mainly about oil (geopolitics versus the “age of plenty”) and domestic consumption data. In the short term, higher oil helps CAD, but retail sales pointed to a weak October and only a “flash” improvement in November. CAD also remains sensitive to U.S.–Canada trade/tariff rhetoric (risk premium).
headlines for CAD
Oil rises after U.S. action around Venezuela – short-term support for CAD (oil beta).
In 2025 the “geopolitical premium” in oil has “disappeared” due to ample supply (U.S. + other producers including Canada) – caps CAD upside.
Retail sales: October -0.2% (CAD 69.4bn) – weaker domestic demand is a drag for CAD.
Advance estimate shows November +1.2% (with revision risk) – the market may read this as “bottoming.”
Summary interpretation: retail weakness driven mainly by food & beverage – an important detail for reading consumption.
Commodity complex: record gold/silver on Fed-cuts bets – indirectly moves CAD via USD and sentiment.
“Tariff exemption” / Canada tariff narrative in 2025 – headline risk for CAD whenever the tone deteriorates.
Global central banks: markets focus more on “who ends cuts” – CAD is a relative play versus USD via yields.
Oil: action around Venezuela suggests tougher sanctions enforcement – oil volatility = CAD volatility.
“Oil abundance” narrative (non-OPEC supply, including Canada) keeps oil lower than geopolitics alone would imply – CAD loses some structural support.
GBP is mostly about UK data showing weak growth and mixed domestic demand while the market recalibrates BoE expectations. That creates an environment where GBP often reacts more to data surprises than pure “risk-on.” In the short term, the uncomfortable mix is weaker macro plus high yield sensitivity.
headlines for GBP
UK economy in Q3 2025: +0.1% q/q (weak growth) – GBP loses momentum.
Current account deficit narrowed – slightly positive for GBP’s external balance, but it doesn’t solve the growth issue.
Retail sales in November fell more than expected – pressure on the consumer narrative.
UK government borrowing came in above expectations – fiscal noise can feed quickly into yields/GBP.
UK job vacancies fell to a 4-year low – labour-market cooling is more negative for GBP.
Wages are rising, but with vacancies weakening, markets debate whether BoE will have to turn more dovish.
CBI: industrial orders at the lowest level since 2020 – negative growth signal and GBP-negative.
Debate around a “soft economy” and UK sentiment – the pound tends to carry higher headline risk in that setup.
“Central banks signal the end of the cut cycle” – GBP will be compared mainly against EUR and USD via relative rates.
UK data mix is “weak growth + weaker consumption” – GBP will be sensitive to every new surprise print.
NZD benefits in the short term from improved domestic sentiment (business/consumer confidence) and a significant boost from weak JPY on the crosses. NZD also got a big structural headline via an FTA with India (trade/investment). The classic risks remain: China and global risk sentiment.
headlines for NZD
New Zealand signed an FTA with India aiming to double trade – positive structural headline for NZD.
ANZ survey: business confidence at the highest level in ~30 years (December/latest sentiment shift).
Consumer confidence in NZ at the highest in more than 4 years; signals stronger discretionary spending.
“AUD and NZD near yen highs” – NZD/JPY supported by carry amid weak JPY.
JPY weak even after a BoJ hike; NZD is among the currencies benefiting versus JPY.
Global central banks signal the end of the cut cycle; for NZ, markets see a possibility of higher rates further out.
China keeps the LPR unchanged – for NZD (via risk/China) more of a drag than a tailwind.
NZ court decision on airport pricing rules – local regulation/capital costs (headline for domestic assets, second-order for NZD sentiment).
Risk-on in Asia (equities higher) keeps NZD more stable as a “beta” currency.
Trade data: narrower trade deficit in November – mildly supportive for NZD via the external balance.
EUR is currently a mix of “ECB on hold” versus weakening parts of the macro picture (consumer confidence) and political/geopolitical headlines in Europe. In the short term, EUR is relatively stable versus USD but plays a major role on the crosses versus JPY (record yen weakness). Within the euro area, German business expectations are worsening, which limits “growth optimism.”
headlines for EUR
ECB has held rates at 2% for a fourth meeting in a row; Lagarde says a change wasn’t even discussed.
ECB sees inflation close to target, but services inflation remains higher – reason for caution.
Eurozone consumer confidence fell (vs expectations for improvement) – negative for domestic demand and EUR’s growth narrative.
German firms expect business conditions to worsen – weighs on “core Europe” sentiment.
The EU approved a €90bn package for Ukraine (financing without agreement on Russian assets) – a framework markets watch also through the EUR lens.
Bank of France raised its growth outlook (assuming politics calm down) – locally supportive for EUR sentiment.
JPY at record lows versus EUR – the EUR/JPY channel is drawing attention.
Japan warns against excessive FX moves after the yen move (including records vs EUR) – risk of sharp corrections in EUR/JPY.
Market wrap: Asian equities higher, yen weaker – an environment where EUR holds “stability” and JPY carries the volatility.
European expectations are mixed (confidence down, ECB on hold) – EUR will be sensitive to the next consumer and Germany-related data.
10. 12. 2025 - Josef Brynda
Financial markets are anxiously awaiting the culmination of the Federal Open Market Committee’s (FOMC) December meeting, which is taking place in an exceptionally complex environment. Although investors almost unanimously agree that the central bank will cut interest rates by a quarter of a percentage point to a range of 3.50–3.75%, the path to this decision is paved with uncertainty. According to futures market data, the probability of such a move is nearly 90%, which would mark the third cut in a row and bring borrowing costs to their lowest level since September 2022. Analysts warn, however, that despite this consensus, this will not be a routine meeting but rather a clash of differing views on whether the economy needs further support or whether there is a risk of reigniting inflation.
One of the biggest challenges facing Chair Jerome Powell and his colleagues is the critical lack of up-to-date information. As a result of the recent record-long 43-day government shutdown, the Fed is operating in what has been called a “data fog.” Key reports on November unemployment and inflation were postponed until mid-December, after today’s decision. Central bankers therefore must rely on outdated or incomplete data, such as yesterday’s JOLTS report. It showed that the number of job openings in October rose slightly to 7.67 million, indicating resilience in the labor market, but a growing number of layoffs suggests cracks forming beneath the surface.
This uncertainty is deepening an already pronounced divide within the committee itself. Today’s vote is expected to produce an unusually high number of dissenting opinions, possibly the most in a decade. On one side stand “hawks” like Jeffrey Schmid, who would prefer to keep rates unchanged due to inflation concerns. On the opposite end is Stephen Miran, a new board member appointed by President Trump, who has publicly called for a more aggressive 50-basis-point cut, arguing that current policy is stifling the economy. This internal conflict puts Powell in a difficult position, as he will have to defend a compromise on the press conference and likely adopt a “hawkish cut” tone, easing policy while warning that further moves are not guaranteed.
The situation is further complicated by unprecedented political pressure from the White House. President Trump has repeatedly criticized Powell for cutting rates too slowly and recently even hinted at removing Governor Lisa Cook, raising fears about the institution’s independence. Adding to this mix are worries about fiscal expansion and new tariffs that could reignite inflation in 2026. For this reason, despite the expected rate cut. 10-year Treasury yields are not falling but instead remain near 4.19%, reflecting investor nerves about the long-term outlook for U.S. debt and inflation.
For investors, the key this afternoon will be not only the decision itself, but also the release of the new interest-rate outlook for 2026, known as the “dot plot.” While markets are currently betting that the Fed will cut rates four times next year, policymakers’ own projections may be far more cautious, pointing to only two cuts. If Powell’s comments or the charts confirm a more restrained approach, it could cool hopes for a traditional Santa Claus rally. The outcome of today’s meeting will determine whether financial markets end 2025 with new highs or with a dose of reality.
Scenario A: Hawkish Cut (60%)
The Fed cuts rates by 25 bps, but the accompanying communication is cautious to hawkish. There may be 2–3 dissenting votes. The 2026 Dot Plot will show only two cuts. Powell will emphasize data uncertainty and avoid committing to another move in January. Markets may react with mild volatility, yields stay elevated, the dollar strengthens, and equities see a muted response.
Scenario B: Dovish Consensus (25%)
The Fed also cuts by 25 bps, but with little dissent. The 2026 projections will show three to four cuts. Powell will express confidence in declining inflation and highlight concerns about a weakening labor market. Markets would react positively, equities rally (especially small caps and tech), yields fall, the dollar weakens, and gold and crypto move higher.
Scenario C: Shock (15%)
The Fed either holds rates unchanged or surprises with a 50 bps cut. A “hold” would trigger a sharp selloff as markets fear a policy mistake. A 50 bps cut would spark short-term euphoria, quickly replaced by concern that the Fed may be reacting to hidden economic weakness.
25. 11. 2025 - Josef Brynda
4. 11. 2025 - Josef Brynda
The United Kingdom, once a symbol of economic stability and a global financial hub, has in recent years faced fiscal challenges ranging from the impacts of Brexit and the COVID-19 pandemic to turbulent waves of inflation and the energy crisis. These factors have left behind a rising public debt, now exceeding 100 percent of GDP, and persistent budget deficits that require the government to carefully balance between growth-oriented investments and fiscal sustainability. This situation sets the stage for the next phase of fiscal policy, in which difficult choices will have to be made between spending, taxation, and investment.
In the current context, the government under Chancellor Rachel Reeves has made it clear that the upcoming budget period will not be easy. In her speech today, she acknowledged that the economic challenges since the last budget have intensified, namely, slowing productivity growth, high global interest rates, and pressures caused by trade tariffs. As a result, strong signals are emerging in the media that the upcoming budget (scheduled for November 26) will include tax increases, although the exact nature of these changes has not yet been confirmed. At the same time, the government emphasizes that it does not intend to return to a strict austerity policy, meaning that spending on public services will be protected.
A key issue for public finances is that the combination of higher spending and growing debt has created a fiscal “black hole” — a budget gap estimated at around £20–40 billion. Additional pressure comes from the welfare system; for example, payments under the Personal Independence Payment (PIP) scheme are rising faster than initially expected, increasing state expenditures. Meanwhile, tax revenues are not growing strongly enough to cover spending and debt servicing costs. As a result, the government faces a clear choice: either raise taxes, cut spending, or adopt a combination of both.
Experts and markets alike are closely watching which policy mix will be chosen. Financial markets have reacted with a drop in the pound’s exchange rate and lower government bond yields following the mention of potential tax changes, as investors remain cautious. Politically, the situation is sensitive, the government had promised not to raise key tax rates before the elections, yet now hints at possible increases. It will therefore be crucial for the ruling party to manage how these fiscal measures affect growth, employment, and public opinion.
The United Kingdom thus faces a challenging fiscal landscape: high debt, a significant budget gap, and a government committed to maintaining public services while warning of the need for “tougher decisions.” The main question remains whether economic growth will be sufficient to ease the pressure, or whether taxes and spending will ultimately have to be adjusted. Watching the forthcoming budget will therefore be essential.
7. 10. 2025 - Josef Brynda
The foreign exchange markets have recently come under strong political influence: in Japan, the election of ruling LDP chairwoman and future prime minister Sanae Takaichi drove significant moves, while in the euro area, the sudden resignation of French Prime Minister Sébastien Lecornu shook the euro. The yen weakened sharply following Takaichi’s victory, and the euro also fell amid political uncertainty in Paris; the pound, caught between these two pressures, lost only slightly against the dollar.
During the day, the Japanese yen fell to a two-month low around 150.6 USD/JPY and to a record low against the euro near 176.4, shortly after Takaichi secured the LDP leadership. Markets interpreted her election as a signal of potential fiscal stimulus and a softer stance toward further monetary tightening, which pushed back expectations of rapid action from the Bank of Japan (BoJ). Finance Minister Katsunobu Katō warned against “undesirable volatility” and confirmed that authorities were closely monitoring currency movements.
Analysts have noted that Takaichi’s victory is more likely to slow rather than completely halt BoJ’s gradual rate-hike cycle. This continues to support the attractiveness of carry trades against the yen and helped push crosses like GBP/JPY to new short-term highs.
In Europe, attention turned to France, where Lecornu resigned just 27 days after taking office. President Emmanuel Macron subsequently tasked him with leading the final round of talks on resolving the crisis. The short lifespan of the cabinet and ongoing uncertainty surrounding the budget are increasing the risk premium on French assets, pushing the euro lower. Investors are also watching the widening spread between French and German 10-year bond yields.
From the ECB’s perspective, officials told the European Parliament committee yesterday that risks on both sides have narrowed and that inflation projections remain close to target for 2026–2027. Market interpretations of recent remarks are only mildly dovish and provide no clear signal for a rapid rate-cut cycle.
In the United States, trading was complicated by delayed key macro data due to the government shutdown: official payrolls were not released, leaving markets to rely on alternative indicators. ADP reported a decline in private employment by 32,000, the Chicago Fed estimated stable unemployment around 4.3%, and the ISM services index fell to a borderline 50 points. These signals reinforced a wait-and-see mode for the dollar, with quick repricing based on every new piece of information.
On major pairs, EUR/USD fell back toward the 1.17 area, where the market is trying to find short-term balance, while USD/JPY remains elevated above 150, supported by Japan’s political and monetary mix. The pound is losing slightly against the dollar but gaining against both the euro and the yen, as attention shifts to upcoming BoE speakers.
In the coming days, the political landscape will be key for forex markets: possible verbal or actual interventions by Tokyo against excessive yen moves, further steps by the Élysée Palace in forming a new French government, and any alternative indicators of U.S. activity until full data publication resumes.
The strength of the USD will also depend on upcoming data. If the NFP, potentially released this Friday, show job growth, it could, combined with still persistent inflation and room for further price increases, lead to a repricing of rate-cut expectations by the Fed. The dollar could then strengthen significantly toward the 1.14 EUR/USD level.
Commodity currencies, especially the CAD and NZD, have recently remained weak against the USD. In New Zealand, the central bank is expected to cut rates by 25 bps tomorrow, which could further pressure the NZD. The cut is likely due to slowing inflation and a fatigued domestic economy, with some even speculating about a 50 bps reduction. The Canadian dollar has also weakened against the USD due to low oil prices, as OPEC continues to discuss output increases, which could push oil prices even lower. As a major oil exporter, Canada is losing part of its revenue stream. Furthermore, Canada’s September manufacturing PMI fell to 47.7, indicating contraction in the sector. Output, new orders, and employment all declined. Altogether, these factors give the Bank of Canada room to continue its rate-cutting cycle.
2. 9. 2025 - Josef Brynda
In the past 48 hours, European-British fiscal tensions have risen dramatically. Yields on UK 30-year bonds climbed to their highest level in 27 years – pricing around 5.68%–5.71% – signaling a sharp deterioration in debt-servicing costs for the United Kingdom. This situation was worsened by a surprising cabinet reshuffle, which the market perceives as a weakening of confidence in the government’s economic strategy and a potential departure from fiscal rules. The pound responded with a drop of about 1% against the dollar.
The euro area is also facing rising yields in bond markets. Yields on 30-year German and French bonds have approached their highest levels since the 2008–2011 financial crisis. France is particularly under market scrutiny due to an upcoming vote of no confidence in the government, expected next week. This political factor is widening the spread between French and German yields, thereby increasing risk premiums. Eurozone inflation rose to 2.1% in August, slightly above the ECB’s target, and the ECB has signaled that it does not intend to push for rate cuts, further tightening fiscal flexibility for member states.
From a sentiment perspective, markets are clearly favoring safe havens. The dollar is strengthening, and investors are moving into commodities – gold even reached a record high above USD 3,500 per ounce. The rise in gold prices signals heightened risk aversion and concerns about destabilization of the fiscal environment. On the forex markets, this translates into a sharp weakening of the euro and the pound, with higher volatility in pairs such as EUR/USD and GBP/USD. For example, EUR/GBP climbed toward 0.8685, confirming the pressure that fiscal uncertainty is exerting on the weakened currencies of the euro area and Britain.
Fundamentally, this means a narrowing of fiscal space for European governments, which face a choice between cutting spending, raising taxes, or risking a “doom loop,” where rising costs lead to eroded confidence and even higher yields. Sentiment analysis reveals that markets view political instability (e.g., in France) as a direct threat to euro stability. From a forex perspective, it is crucial to monitor further bond yields, investor sentiment, and central bank rhetoric. If the situation does not stabilize, it may lead to further turbulence: a new debt cycle, strengthening of the USD at the expense of the euro and pound, and continued growth of gold prices as an indicator of market uncertainty.
31. 7. 2025 - Josef Brynda
At its July meeting, the Federal Reserve left the federal funds rate unchanged in the range of 4.25 to 4.50 percent. Chair Jerome Powell stated that the Fed considers the current monetary policy stance appropriate as it provides room to wait for further economic data. Any potential moves at the September meeting will therefore be determined primarily based on new inflation and employment figures.
Although the U.S. economy is slowing, overall performance remains relatively strong. GDP growth for the first half of the year reached 1.2 percent compared to 2.5 percent last year. The main reason is lower consumer activity. Adjusted data, which exclude the impact of government spending, inventory changes, and foreign trade, also indicate a cooling of domestic demand. However, the Fed does not consider the situation alarming and views the economy as resilient. In the first quarter, GDP fell by 0.5 percent, mainly due to a sharp increase in imports. Companies were restocking, and the net export component therefore reduced overall growth. For the second quarter, the preliminary growth figure is 3 percent.
The labor market remains stable and close to full employment. Unemployment is still low, and neither the supply nor the demand for labor shows significant imbalances. A slight decrease in demand for workers is not considered a risk. This supports the maintenance of a slightly restrictive monetary stance aimed at preventing a renewed acceleration of inflation.
An important topic of the meeting was the impact of new tariffs. Powell acknowledged that higher tariffs are already partially affecting the prices of some products, but their overall impact on inflation remains unclear. The Fed expects rather a temporary effect, though it does not rule out the possibility of more persistent inflationary pressure. Crucially, long-term inflation expectations remain stable near the target level.
Financial markets perceived the outcome of the meeting more as a sign of caution than as a willingness to cut rates quickly. The dollar strengthened, U.S. Treasury yields rose, and the probability of a September rate cut fell below 50 percent, compared to around 60 percent before the meeting. This suggests that investors now expect monetary policy easing to occur later.
Powell repeatedly emphasized that the Fed will make its decisions based on real data. Particular attention will be paid to the Consumer Price Index to be released in the first half of August, as well as labor market figures. Powell also stated that the labor market is close to target, while inflation remains elevated. It will therefore be important to monitor, for example, Friday’s Nonfarm Payrolls report, which may provide a clearer picture of employment trends.
As we have noted earlier, it would be rather unusual under current conditions for the Fed to make two rate cuts before the end of the year. The same view was expressed by Bloomberg analysts, who, like Powell, currently see no reason for a significant monetary policy easing. For rate cuts to occur, there would need to be a sharp deterioration in the labor market or a rapid decline in inflation, which does not seem to be happening so far.
For financial markets, it will be important to watch the event referred to as Trump’s “Liberation Day No. 2,” scheduled for August 9. If it turns out that the deals are at a level that would not push the U.S. economy into stagflation, markets could continue to price in fundamental divergences that would support further strengthening of the dollar.
This has in fact been visible on the EUR/USD pair, something we have warned about in previous articles. In particular, interest rate divergence had been somewhat downplayed, with sentiment and expectations prevailing over hard data. After the agreement between the EU and the U.S., the market began to price in the divergence more strongly, and the dollar has already strengthened by almost 4 percent from its high earlier this year.