25. 2. 2025 - Josef Brynda
German elections
The German elections were won by the conservative CDU/CSU union with 28.52% of the vote. The far-right party AfD finished second with a record result of 20.8% and expressed its ambition to co-shape political developments in Germany. However, the winning party firmly rejected this possibility.
AfD, together with the left-wing party Die Linke, secured what is known as a blocking minority, which could enable them to obstruct CDU/CSU’s planned reforms on the debt brake and military modernization. This suggests that negotiations will be complex.
Following the election results, the euro initially strengthened against the dollar by up to 0.7% in anticipation of responsible fiscal policies. However, the subsequent weakening of the euro was likely caused by uncertainties surrounding coalition negotiations and the potential blocking minority formed by AfD and Die Linke.
Coalition talks are expected to take place primarily with the SPD, with whom the CDU/CSU collectively secured 328 seats out of 630. Merz, the incoming chancellor, is striving to expedite negotiations as much as possible to prevent political stagnation.
German economy
While elections took place in Germany, the country’s economy continues to struggle. According to the latest GDP data, economic output declined by 0.2% in the fourth quarter of 2024, confirming a second consecutive year of economic contraction. Forecasts for 2025 predict growth of just 0.3%, significantly lower than the initial estimates.
The main issues include an industrial slowdown, particularly due to high costs in the automotive sector, as well as the ongoing war in Ukraine, which has led to higher energy costs. Additionally, weak consumer confidence remains a challenge, as stagnating wages continue to impact the labor market.
12. 2. 2025 - Josef Brynda
The latest inflation data for the USA has just been released. The actual figures were higher than expected, which led to a nearly 1% strengthening of the USD compared to today's local high. The data suggests that the Federal Reserve (FED) may continue tightening monetary policy, as accelerating inflation poses a risk to long-term price stability. At the same time, with the US imposing tariffs that create pro-inflationary pressures, the FED may not be in a hurry to take further action.
This trend could lead to parity between EUR and USD, which is no longer an entirely unrealistic target. Such a development could be disadvantageous for American exporters. Additionally, rising inflation could negatively impact US stock markets, which may report lower results this year due to the potential for stricter policies from the central bank. These conditions could limit opportunities for domestic companies, potentially driving investors towards safer assets.
Given these findings, it will be crucial to watch Jerome Powell’s speech today, as it may provide insight into the future direction of monetary policy, with expectations leaning towards a more hawkish tone.
Overall, both sentiment and fundamental analysis suggest that under these conditions, the USD should remain strong, while the stock market could be paralyzed by these data.
12. 2. 2025 - Josef Brynda
Powell described the U.S. economy as "generally strong," highlighting a robust labor market and stable GDP growth. However, inflation remains above the Federal Reserve’s 2% target. In response, the chairman struck a more hawkish tone, which could weigh on potential stock market growth next year. As a result, capital is flowing into safe-haven assets, reflected in record-high gold prices and a strong U.S. dollar.
Today’s focus will be on Powell’s next speech, which will be heavily influenced by the latest inflation data set to be released. Higher-than-expected inflation could further reinforce his hawkish stance on delaying rate cuts.
6. 1. 2025 - Josef Brynda
Donald Trump denied easing tariffs
Around noon Central European Time, an interesting event unfolded, highlighting a phenomenon often referred to as "Trump Trade." Washington News reported that Donald Trump planned to soften his pre-election stance on imposing tariffs on other countries as part of his protectionist policies. For details on the potential implications of such a move, refer to previously published articles on our profile.
This announcement triggered a reaction in the markets, causing the U.S. dollar to weaken by up to 1%. Investors adjusted their expectations, dismissing the possibility of inflationary policies linked to tariffs and the associated higher interest rates. However, shortly after 3 PM, Donald Trump himself denied these claims, prompting the dollar to recover by half a percent.
This situation perfectly exemplifies the unpredictability of "Trump Trade," where unexpected events often cause significant market swings. As Trump’s new term approaches, it’s clear that this period will be closely watched, requiring careful analysis and filtering of news to navigate the market effectively.
18. 12. 2024 - Josef Brynda
The Strength of the Dollar Should Continue: What Drives the Growth of the U.S. Currency?
The dollar remains one of the most closely watched assets in financial markets, even as the Federal Reserve (Fed) has decided to lower interest rates today. According to traditional macroeconomic theory, this move should weaken the dollar while boosting equities. However, in the current environment, the rate cuts were largely priced in, as evidenced by the CME FedWatch Tool – a key indicator of interest rate trends – which showed a 96% probability of this move.
Why, then, should the dollar maintain its strength despite today’s rate cut?
The key lies in the Fed’s rhetoric and forecasts, which have once again proven to be crucial for market direction. The Fed adjusted its outlook for 2025, now projecting only two rate cuts instead of the previously planned three. Additionally, it has reduced the scope of the cuts to 50 basis points (bps). Moreover, it raised its inflation forecast for 2025 from 4.25% to 4.5%. These changes suggest that the central bank will continue to closely monitor inflationary pressures and maintain a relatively tight monetary policy. These fundamentals support the dollar’s strength, as confirmed by investor sentiment.
How Will Donald Trump's Return Impact the Markets?
Donald Trump’s return to the presidency could bring additional dynamics for the dollar. At first glance, his administration might be seen as a positive signal, but the unpredictability of his policies could complicate the situation. For instance, deportation of the labor force could increase unemployment and reduce performance in key sectors, negatively affecting consumption. On the other hand, this move could boost inflation, as domestic labor is more expensive than workers from Mexico or other countries. Higher inflation could compel the Fed to adopt an even tighter monetary policy.
Another key factor will be the independence of the central bank during Trump’s administration. It will be critical to observe how the Fed maintains its independence, particularly with a new Fed Chair taking office. Trump has previously hinted at influencing the Fed via the U.S. government, which could create significant challenges for the credibility of the entire U.S. economy. Trump favors the lowest possible rates, which make borrowing cheaper in financial markets and support sectoral activity.
What to Expect from the Dollar in 2025?
Based on current fundamental data and investor sentiment, the dollar is expected to maintain its strength in 2025. Additionally, there is potential for the EUR/USD currency pair to reach parity, given the challenges faced by the Eurozone. This would further confirm the dollar’s dominance in global markets.
For investors, it remains critical to monitor not only economic data but also political developments in the U.S., as these will have a decisive impact on the future trajectory of the U.S. currency.
27. 11. 2024 - Josef Brynda
With Donald Trump leading in the polls ahead of the election, policymakers in Seoul were coming up with a game-plan. If Trump wins and threatens tariffs, then South Korea — which has the seventh-largest trade surplus with the US — could ramp up imports of American energy.
It would be a win-win: Korea could avoid tariffs, the trade imbalance might come down. European Commission President Ursula von der Leyen similarly pitched to Trump directly, after his victory, buying more US liquefied natural gas. In Mexico City, officials have been working to curb some Chinese imports to avert criticism that their nation was serving as a conduit for China goods to enter the American market.
One thing in common with all those approaches: they speak to economics. And, thinking back to Trump’s first term, that might have made sense. His escalatory rounds of tariffs on China came in the run-up to a Phase One trade agreement. He slapped levies on washing machines to aid US manufacturers.
Trouble is, Trump’s Monday evening bombshell announcement of tariffs on the top three sources of US imports — Mexico, China and Canada — were tied to nothing economic. The measures, to be set in an executive order when Trump takes office Jan. 20, were cast as necessary to clamp down on migrants and illegal drugs flowing across borders.
26. 9. 2024 - Josef Brynda
China’s top leaders ramped up efforts to revive growth with pledges to support fiscal spending and stabilize the beleaguered property sector, giving new momentum to stimulus measures aimed at arresting a slowdown in the world’s second-largest economy.
President Xi Jinping’s huddle of the 24-man Politburo concluded with a promise to strive to achieve the country’s annual economic goals, the official Xinhua News Agency reported Thursday. Officials pledged action to make the real estate market “stop declining,” their strongest vow yet to stabilize the crucial sector after new-home prices fell in August at the fastest pace since 2014.
The government will also strictly limit the construction of new-home projects, the Politburo said, as part of efforts to ease residential oversupply — although such building has ground to a near-halt.
25. 9. 2024 - Josef Brynda
These developments may influence forex markets, affecting USD strength, commodity currencies, and overall market sentiment.
23. 9. 2024 - Josef Brynda
The start of a new rate-cutting cycle at the Federal Reserve has bank investors hoping for a return to 1995.
That was the year the banking industry began one of its best runs in US history following a series of new rate cuts from the Fed and a soft landing engineered by then-central bank chair Alan Greenspan.
An index broadly tracking the sector finished 1995 up more than 40%, outperforming the S&P 500 (GSCP). And that outperformance would hold for two more years.
Could it happen again?
So far, bank stocks are off to a good start. This year, the same banking industry index that soared in 1995 (^BKX) is up more than 19%, just behind major stock indexes.
Meanwhile, another index (XLF) tracking big banks along with other major non-bank financial firms is up 21%, just ahead of major indexes.
"History isn’t likely to repeat, but it may rhyme," Mike Mayo, a Wells Fargo analyst who covers the country’s largest banks, said of the 1995 comparison.
Mayo isn’t counting on next year being as good as that mystical year, but he does see similarities.
