18. 2. 2026 - Josef Brynda
Global tensions between the United States and Iran reached an extremely sensitive phase as of February 18, 2026, following the expiration of the previous deadline on February 17 and the simultaneous paradox of “diplomatic progress vs. military demonstrations.” Indirect talks in Geneva concluded with a potential framework agreement on “guiding principles” and a two-week pause to finalize the specific terms. At the same time, however, the U.S. has visibly increased military readiness in the CENTCOM area of responsibility, while Iran has demonstrated its capacity for escalation through exercises simulating the closure of the Strait of Hormuz, which we witnessed yesterday. This has created a situation of a “fragile truce with a live fuse” for markets and allies alike, where outcomes may hinge on days and incidents.
Arguments in favor of an immediate strike rest on operational indicators and the non-negotiability of red lines. Particularly important in this context is Vice President JD Vance’s statement following the Geneva meetings that Iran still refuses to acknowledge and engage with the president’s key “red lines.” Vance also indicated that if diplomacy reaches its “natural conclusion,” the president reserves the full right to pursue a military option to prevent the emergence of a nuclear-armed Iran. This framing shifts the crisis into a binary structure: either an agreement meets U.S. security requirements, or the probability of coercive force increases.
On the other hand, the very existence of a two week window argues against an immediate strike, serving as a procedural brake. Trump’s style typically relies on maximum economic pressure as a negotiating lever rather than a willingness to enter into a prolonged conflict with the risk of an oil shock. The greatest threat lies in the economy and oil prices: escalation in the Strait of Hormuz could trigger an energy shock, a resurgence of inflation, and renewed pressure on central banks politically and macroeconomically toxic outcomes.
In currency markets, the key transmission channels are risk sentiment, energy, and yields. In an escalation scenario, the U.S. dollar typically strengthens, while risk-sensitive currencies (such as AUD and NZD) and those exposed to global growth tend to weaken. For the euro, the conflict is a double-edged sword: an oil shock harms Europe through higher energy import costs and a deterioration in terms of trade, which generally pressures the euro lower; however, the euro may temporarily hold up against more risk-sensitive currencies. Escalation can also benefit “oil currencies” (such as CAD and NOK) due to higher oil prices at least until fears of a global slowdown begin to dominate.
Across commodities and equities, the most sensitive channel is energy. Any signal of a real disruption in the Strait of Hormuz quickly increases the geopolitical risk premium in oil and raises volatility across markets. Oil has an asymmetric profile (sharp spikes on incidents versus gradual unwinding of the premium under diplomacy), while gold functions as a barometer of fear (risk-off -> gains; easing tensions -> correction). In equities, higher energy prices translate into higher inflation expectations and upward pressure on yields, which typically weigh on the broader market while benefiting the energy sector; defensive sectors tend to hold up relatively better. Until the two-week window expires, pricing across FX, commodities, and equities will remain heavily driven by headline risk and Vance’s emphasis on “red lines” ensures that markets will interpret every new statement from Washington and Tehran as a direct signal of direction.
2. 2. 2026 - Josef Brynda
The Australian economy enters February 2026 at a critical turning point. Following 2025, during which the Reserve Bank of Australia eased monetary policy three times to a level of 3.60%, the tide is turning. The upcoming board meeting, scheduled for the night of February 2nd to 3rd, is viewed by markets as the catalyst for a new "fine-tuning" phase. The primary driver for this shift is unexpectedly rigid inflation in the final quarter of 2025, where the trimmed mean reached 3.4%. For Governor Michele Bullock, this sends a clear signal: the path to the 2–3% target range is thornier than models predicted, and current rates are likely no longer sufficient to anchor inflation expectations.
Current market sentiment speaks volumes. The probability of a 25-basis-point hike to 3.85% climbed to 72% at the end of January. This sharp rise in expectations reflects a "hawkish" cocktail of domestic labor market data, where the unemployment rate fell to 4.1% and job advertisements jumped by a record 4.4% in January. Australia is thus grappling with capacity constraints, where demand for labor, alongside investments in energy transition and data centers, is exerting upward price pressure.
While a February hike is largely priced in, the real battle among analysts centers on the outlook for the remainder of 2026. Major banking institutions such as CBA and Westpac are betting on a "one-and-done" scenario, arguing that given the high debt levels of Australian households, even a modest shift to 3.85% will be sufficiently restrictive. Conversely, National Australia Bank (NAB) warns that if inflation in services and government levies does not subside, we will witness a further tightening to 4.10% in May. For borrowers with an average mortgage of AUD 600,000, every 25-point hike represents an increase in repayments of approximately $90 a politically and socially sensitive issue in the context of the rising cost of living.
For the AUD/USD currency pair, the RBA meeting represents a key test of resilience. While the Australian dollar touched two-year highs above 0.7090 in late January, a strong US dollar and cooling in the iron ore market have created significant resistance. If the RBA confirms a hawkish stance in its accompanying commentary, the AUD could return to an upward trend targeting 0.7200. However, if the bank adopts a cautious tone and labels the hike as a "preemptive step," there is a risk of a "sell the fact" sell-off. On Tuesday night, we await more than just a change in numbers; we await the definition of the monetary narrative for the entire first half of 2026.
Crucially, the broader perspective on the USD will be paramount. Donald Trump’s nomination of Kevin Warsh as Fed Governor is having a positive impact on the USD. Warsh intends to utilize a strong dollar to dampen inflationary pressures, which would subsequently allow the new Governor to lower interest rates. This would provide relief to both consumers and manufacturers, and most importantly reduce the servicing costs of the massive US national debt while increasing the purchasing power of Americans abroad. Furthermore, in a context where the USD has been undergoing a period of instability, any stabilization combined with persistent positive fundamentals like labor market stability and GDP growth above the inflation target could trigger a return of investors to the Greenback.
It will therefore be vital to monitor Governor Bullock’s accompanying commentary as well as the emerging rhetoric regarding the future leadership of the Fed.
27. 1. 2026 - Viktor Pavlik
The dollar slumped to a four-month low on the news of a possible yen intervention. Japanese Prime Minister Sanae Takaichi herself said that her government would “take necessary steps against speculative or very abnormal market moves” to support the yen.
Tokyo intervened in the market a few times, last being the 2024 interventions, which saw roughly $100 billion spent trying to keep USD/JPY below 160, the level almost reached on Friday. After the Fed contacted the BOJ, pair declined to todays 153.
If the Fed decided to intervene, we see even more dollar weakness, for which we are preparing.
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.