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Fed in the Fog: Today’s Meeting Will Decide Rates Amid Political Pressure and Data Blindness

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 Central bankers therefore must rely on outdated or incomplete data, such as yesterday’s JOLTS report.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.

UK Autumn Budget: Sterling Braced for 1.5 % Volatility as £30 bn Fiscal Gap Forces Tough Choices

25. 11. 2025 - Josef Brynda

The UK Autumn Budget, which Chancellor Rachel Reeves will present tomorrow, 26 November, has become the primary source of volatility for the pound sterling. GBP/USD is currently holding around 1.3100 after bouncing from a seven-month low, but one-day implied volatility has surged to its highest level since March 2025. Latest speculative positioning from CFTC data and bank estimates (22–24 November) shows a record net short on the pound, exceeding 110,000 contracts, the largest bearish bet since Liz Truss’s mini-budget in 2022. The market has already largely priced in a fiscal gap of around £30 billion and is bracing for a combination of tax hikes and spending cuts that could still deliver unpleasant surprises.

The key budget measures, according to the latest previews from Goldman Sachs, Barclays and ING (23–25 November), will centre on increases in capital gains tax and inheritance tax, an extension of the income-tax threshold freeze until 2030, and restrictions on pension contribution tax relief. These steps are expected to raise £20–35 billion annually without breaching Labour’s “triple lock” pledge (no rises in income tax, National Insurance or VAT for working people). At the same time, savings are anticipated in welfare spending and public investment, though internal party resistance is limiting their depth. The Office for Budget Responsibility (OBR) forecasts, released alongside the budget, are likely to downgrade 2026 growth to 1.0–1.2 % and show inflation remaining persistently above 2.5 % through the end of the decade, putting further upward pressure on gilt yields.

From a forex perspective, the base case remains bearish. Should the tax package exceed £40 billion or the OBR sharply worsen its outlook, 10-year gilt yields could quickly climb above 4.6 %, opening the door for GBP/USD to fall toward 1.2950–1.3000 within days and pushing GBP/EUR close to parity. Such a yield spike would, in this context, reflect rising investor concerns about the UK economy and force the Bank of England into faster rate cuts. Conversely, a more moderate package emphasising investment and better-than-feared OBR forecasts could trigger a short squeeze and a move back above 1.3200. Banks currently assign a 60–65 % probability to a negative surprise, given Reeves’s extremely narrow room for manoeuvre between fiscal rules and political promises.

Short-term sterling volatility is therefore expected to exceed 1.2–1.5 % intraday tomorrow, two to three times the usual level. The most critical indicator will be the immediate reaction in the gilt market: a rise of more than 10–15 basis points in the first hour after the announcement would signal another wave of GBP selling. Traders should have scenarios ready for both directions, with tight stop-losses and extra caution on EUR/GBP and GBP/USD crosses, as tomorrow’s budget will shape the pound’s trajectory at least through the end of the year.

The UK’s Fiscal Crossroads: Balancing Growth, Debt, and Tough Choices Ahead

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.

Politics Moves the FX Market: Yen Slumps After Takaichi’s Election, French Turmoil Weighs on Euro, Dollar Stays in Focus

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.

Fiscal Shocks in Europe: Markets Punish Deficit Policies – Is Europe on the Brink of a New Debt Crisis?

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.

Fed Holds Rates Steady as Powell Stresses Data-Dependent Path – Dollar Strengthens

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.

EU and US Reach Trade Deal: 15% Tariffs, Billion-Dollar Investments, and Avoidance of Trade War

28. 7. 2025 - Josef Brynda

Last night (July 27, 2025), the United States and the European Union reached a framework trade agreement setting a 15% import tariff on most European exports to the U.S., compared to the initially threatened 30%. At this stage, it is a basic political framework without a formally signed legislative agreement, leaving room for future revisions and interpretations of the provisions.

The agreement also includes EU commitments: USD 600 billion in investments into the U.S. economy and USD 750 billion in energy and military purchases (primarily LNG, oil, nuclear fuel, and military equipment). While tariffs on steel and aluminum remain at 50%, their future is tied to a transition to a quota regime.

This news initially brought some relief to both U.S. and European equity markets. However, in the current European session, the DAX is trading 0.12% below its opening price, and the S&P 500, despite opening higher, has also slipped, currently trading around +0.25% above the opening price. EUR/USD opened roughly +0.02% higher, but the dollar has since strengthened significantly and is now trading nearly +0.65% against the euro (or approximately -0.65% in the EUR/USD pair). According to Marco Antonio Soriano - Chairman & CEO of Soriano Group & Family OfficeChairman & CEO of Soriano Group & Family Office "The 15% EU-US tariff deal increases costs for EU exporters, particularly in automotive, pharmaceuticals, and e-commerce, risking reduced competitiveness and recession in Europe. US businesses gain from EU energy and investment commitments but face potential EU retaliation and supply chain disruptions. The deal strengthens transatlantic ties, supporting the US dollar’s dominance by keeping the EU aligned with dollar-based trade, but risks remain if EU firms pivot to BRICS markets. Both EU and US businesses must adapt through cost management, market diversification, and strategic partnerships to navigate this new trade landscape."

Reuters writes that “analysts point out that large-scale European investments in the U.S. and purchases of American energy and military equipment could, in the long run, support capital outflows from Europe and strengthen the USD.”

It will therefore be interesting to see how Jerome Powell justifies these measures. Tariffs have not disappeared from the world, but they seem to have taken on a new character in the form of stability. However, this does not change the essence of the matter, only its sentiment. Tariffs initially increase net exports in the short term, but in the long term, exports tend to return to their original levels, only with a higher real exchange rate, meaning an appreciation of the currency.

The Fed meeting will take place on Wednesday, with the probability of holding rates at over 95% according to the CME Group. However, the market continues to expect two rate cuts by the end of this year. I believe, as I have previously indicated, that there will be only one cut. This week could decide the matter. Important data will be released from the U.S., especially concerning the labor market, which, if it remains stable, will help, or rather complicate a rate cut in September. On Thursday, the PCE inflation report will be published, which is forecast to rise again this month. Under such conditions, it would be very difficult to proceed with monetary policy easing.

In the USD pair, there could be rebalancing due to capital inflows into the U.S. A lower risk premium could also be required, as investors may not demand it thanks to relatively sustainable tariffs. The U.S. has had a prolonged divergence between its indicators and those of other countries, and the dollar could start benefiting more from this.

Boe's Bailey: Most crowded trade in the market is short dollars

22. 7. 2025 - Josef Brynda

In a recent statement, Bank of England Governor Andrew Bailey highlighted an interesting phenomenon currently dominating global financial markets – the record level of bets against the U.S. dollar. According to him, shorting the dollar has become “the most crowded trade in the market,” raising questions about the stability of this trend and the possibility of a reversal. Investors are heavily speculating that the value of the dollar will decline in the coming months, possibly due to expectations of interest rate cuts by the Fed, macroeconomic imbalances, or a geopolitical shift in preferences toward alternative currencies.

From a market psychology perspective, this situation is risky. Excessive concentration in a single type of trade – in this case, betting on the dollar’s decline – increases the likelihood of a so-called “short squeeze,” a sudden surge in the asset’s price as traders scramble to close their positions out of fear. Historically, such moments have often triggered volatility and corrections. Bailey is thus indirectly warning of a potential rebound of the dollar, especially if the U.S. economy proves to be more robust than currently anticipated, or if inflation in the U.S. fails to slow down.

There is also an interesting geopolitical and institutional dimension to this phenomenon. Despite its relative weakening, the dollar remains the dominant reserve currency and the primary medium for international trade. When markets place overly aggressive bets on its depreciation, any shift in global expectations – for example, a sudden hawkish statement by the Fed or geopolitical tensions – could quickly reverse market sentiment.

Overall, this scenario is far from unrealistic. Market bets on a July rate cut – or no cut – are currently around 97%, and bets that the Fed will not cut rates in September have risen from 10% to over 40%. Recently, the labor market has shown stronger-than-expected figures and surprised the markets, with inflation also rising according to the latest CPI reading. For instance, jobless claims have reversed and are now in a downward trend, signaling a robust labor market. If the labor market maintains its strength and inflation continues to rise, I do not believe the Fed will make two rate cuts this year. A major milestone for decision-making will be August 1st, especially regarding which tariffs will or will not be imposed. Additionally, Fed Chair Jerome Powell has a scheduled briefing today, where he may outline the Fed’s future direction for monetary policy.

Daily Analysis 2025/07/09

9. 7. 2025 - Josef Brynda

Latest news

USD

Stock futures in the US were slightly higher on Wednesday, with contracts on the three major averages edging up 0.3%, with traders continuing to focus on trade announcements. President Trump signaled that updates would be released today.
In addition, he also said he planned to implement a 50% tariff on copper imports and threatened to impose tariffs of up to 200% on pharmaceutical imports, though he noted that implementation would be delayed by 12 to 18 months to allow for industry adjustments.
Traders await the FOMC minutes release for further insights on when the Fed plans to lower interest rates.
Markets continue to bet on two 25bps cuts until the end of the year, with a 63% chance of a first reduction in September.
The yield on the US 10-year Treasury note held above 4.4% on Wednesday after rising for five straight sessions, as investors evaluated the latest tariff measures unveiled by President Donald Trump.
The US Dollar has rarely ever been this oversold. The US Dollar index is trading 6.5 points below its 200-day moving average, the largest margin in 21 years.

CAD

CAD hovered around its weakest in eight days. That came as traders feared a looming 50% U.S. tariff on copper a key Canadian export.
The Canadian supply-managed dairy system remains a major sticking point. Though Canada dropped a digital services tax to pave negotiation, U.S. dairy tariffs loom as a negotiation disruptor
Canada's manufacturing PMI dropped to 45.6 in June, its fifth straight month below 50, highlighting weakness from tariffs, especially in steel and aluminum.
Canada’s services PMI fell to 44.3, despite stronger metals and oil prices.
Canada’s trade deficit in May narrowed to C$5.9 billion, but CAD weakened due to overall lower exports to the U.S.

EUR

European stocks extended gains on Wednesday afternoon, with the STOXX 50 adding 1.1% and the STOXX 600 rising about 0.8% to levels not seen in nearly a month.
European equity markets rallied on July 9, showing limited concern over President Trump’s announcement of a 50% tariff on copper and steep pharmaceutical duties.
ECB officials have flagged concerns over the euro’s rapid 14% rise this year. With EUR/USD around $1.18, levels above $1.20 may hurt eurozone exporters and suppress inflation, potentially prompting rate cuts.
EUR/USD is up over 13.5% YTD, driven by Europe’s €500 bn defense-related fiscal measures, capital inflows, and expectations that the ECB is close to ending its rate-cut cycle.
A Chinese warship allegedly pointed a laser at a German reconnaissance plane participating in the EU’s ASPIDES mission over the Red Sea. Germany condemned the incident as "dangerous and unacceptable." The EU summoned the Chinese ambassador; China denies any wrongdoing.
In response to new EU restrictions on Chinese companies, China has imposed a ban on European medical device manufacturers from participating in public tenders above 45 million yuan (~6.3 million USD). This move escalates tensions in EU–China trade relations.
The EU is considering diplomatic and strategic responses to protect its interests.
The EU is negotiating a trade framework with the U.S., targeting tariff reductions on steel, cars, and other goods by August 1 — and seeks a “stand-still” clause to prevent future hikes. However, Washington has not yet committed.

GBP

Pound steadies as BoE flags financial stability risks amid tariffs.
New U.S. tariffs on copper, semiconductors, and pharmaceuticals-part of impending duties on multiple countries are casting a shadow on global growth. GBP has outperformed due to UK being less exposed (thanks to its existing trade deal), but uncertainty persists.
Recent reversals in welfare reforms and a deficient £31 bn fiscal gap have triggered gilt sell-offs and weighed on GBP.
BoE policymaker Alan Taylor suggested rate cuts toward 3% could come by year-end, with markets pricing in a September reduction.
Earlier this week, PM Starmer’s endorsement of Chancellor Reeves helped stabilize markets, gilts rallied and the pound recovered, buoyed further by the strongest UK services PMI in 10 months.

AUD

The Reserve Bank of Australia left the official cash rate unchanged at 3.85%, despite market expectations of a 25 basis point cut.
The RBA warned that inflationary pressures may persist due to rising unit labor costs and low productivity, which has helped support the AUD.
Trump announced 25% tariffs on Japanese and Korean exports, causing uncertainty in currency markets.
CBA warned that a possible expansion of U.S. tariffs to BRICS countries could lead to a sharp drop.
Markets still expect a rate cut by the RBA in August, but short-term momentum is weak.
China's Blistering Heat Leaves Workers Exposed as Gig Economy Booms.
Hong Kong Bank Borrowing Rise May Signal Tighter Liquidity.

NZD

On July 9, the Reserve Bank of New Zealand maintained its official cash rate at 3.25%, pausing its easing cycle for now, though policymakers noted the potential for future cuts depending on inflation trends.
Ongoing U.S. tariff threats (on copper, semiconductors, pharma, etc.) continue to create uncertainty in global currency markets.
Asian currencies, including NZD, dropped ahead of the U.S. tariff deadline and the RBNZ meeting, reflecting cautious investor positioning.
China's Blistering Heat Leaves Workers Exposed as Gig Economy Booms.
Hong Kong Bank Borrowing Rise May Signal Tighter Liquidity.

News summary

EURUSD

EUR/USD is currently trading around 1.18, consolidating after a strong rally. The euro has gained over 13% year-to-date, mainly driven by EU fiscal stimulus (e.g., the €500 billion defense package), capital inflows, and expectations that the ECB is nearing the end of its rate-cutting cycle. However, concerns are growing within the ECB about the euro's strength, levels above 1.20 could start to hurt exporters and drag down inflation, potentially forcing the central bank to intervene verbally or even reconsider its policy stance. This has injected caution into the bullish momentum, as the euro’s strength risks triggering pushback from policymakers.

The U.S. dollar, on the other hand, is near multi-decade lows, trading 6.5 points below its 200-day moving average, the most oversold in 21 years. Markets are still pricing in two rate cuts by the end of the year, with a 63% chance for the first in September, down from upper odds just weeks ago. However, pressure on the Fed is mounting, partly due to political interference. Trump's ongoing commentary toward the Fed undermines its independence, especially as Chair Powell's term expires in early 2026 and Trump will nominate the next chair. While the Fed Chair doesn’t set policy alone, with voting power resting in the Board of Governors (appointed for 14-year terms to preserve independence) the rhetoric adds uncertainty.

Trump is also reigniting his tariff strategy, sending letters signaling new trade actions. Tariffs typically increase domestic prices, which would justify keeping rates higher and support the USD. Yet if the policy rollout is chaotic, it may further weaken the dollar. Conversely, if tariffs are structured and protect U.S. industry effectively, the dollar could benefit. The outlook for a September rate cut is increasingly uncertain as more FOMC members shift toward a no-cut stance, citing a strong labor market and resilient economy. But very importants will be note at todays FOMC minutes.

Technically, the dollar remains extremely oversold. We therefore expect a gradual consolidation toward levels around 1.12–1.10 by the end of 2026. However, in such a turbulent environment, the key drivers will be incoming data and market sentiment which has started to tilt slightly against the euro. Fundamentally, the U.S. economy still outperforms Europe, but elevated expectations in the eurozone remain attractive to investors. However, in such a volatile macro environment, market direction will heavily depend on upcoming data and overall sentiment which is slowly shifting against the euro. Fundamentally, the U.S. economy still appears stronger than the eurozone, but elevated investor expectations in Europe continue to attract capital inflows.

USDCAD

The Canadian dollar is weakening from this year’s highs, as Trump’s proposed 50% tariffs on copper weigh on Canada’s economic outlook given the country's role as a major copper exporter. At the same time, concerns about a potential recession in Canada are growing. Analysts at ING note that the Canadian dollar has become largely unappealing. Tariffs imposed by the U.S. on Canadian goods could further undermine Canada’s economy. Much will depend on the final structure of Trump’s trade measures.

Friday’s Canadian labor market data will be a key event to watch, with forecasts pointing to further weakness. Economic growth in Canada is projected to remain subdued at around 1%, and the economy continues to suffer from lower exports to the U.S. Another factor to monitor is the evolving U.S.–Canada relationship, particularly given that Canada has recently been selling U.S. Treasuries. If Canada were to resume buying U.S. debt, it could further weaken the Canadian dollar, especially in combination with a soft labor market and slow economic growth.

AUDUSD

The Australian dollar has remained relatively stable in recent days despite weakening sentiment and expectations of monetary policy easing. The Reserve Bank of Australia unexpectedly held rates steady at 3.85%, defying market expectations of a 25 basis point cut. The RBA also warned of persistent inflationary pressures driven by rising unit labor costs and weak productivity, which offered short-term support for the AUD. Nevertheless, markets continue to price in a potential rate cut in August, limiting the upside potential for the Australian currency. Short-term sentiment remains fragile, further weighed down by growing geopolitical uncertainty.

Weak Chinese data and global risks are capping AUD’s potential:
Today’s data out of China confirmed subdued domestic demand June CPI rose just 0.1% year-over-year (vs. –0.1% expected), with a monthly decline of 0.1%. Meanwhile, producer prices remain deeply in deflation, falling –3.6% year-over-year. This adds pressure on China, Australia’s key trading partner, and dampens demand for commodities. China’s continued economic weakness poses a headwind for Australian exports. In addition, Trump’s announcement of 25% tariffs on Japanese and Korean exports along with CBA’s warning that expanding tariffs to BRICS nations could trigger sharp losses in risk-sensitive currencies further clouds the outlook for AUD. Rising interbank rates in Hong Kong, signaling tighter liquidity conditions in the region, add to the downside risks facing the Australian dollar.

AUDNZD

The market had expected a rate cut, which gave the Australian dollar short-term support. However, the RBA still signals the possibility of policy easing in August if inflation slows. In contrast, the RBNZ kept its rate at 3.25% and acknowledged that further rate cuts are likely if inflation remains low, which weakens the New Zealand dollar. Chinese data remains weak CPI rose just 0.1% year-over-year and PPI is deep in deflation reducing demand for commodities and negatively impacting NZD in particular due to its reliance on agricultural exports. Risk sentiment also remains tense following Trump’s new tariffs and the potential expansion of trade measures to BRICS countries, which could pressure risk-sensitive currencies, including NZD. The yield differential is gradually shifting in favor of AUD, and our analytical outlook expects a possible uptrend moves with sidemoves above in the AUD/NZD pair if monetary easing continues in New Zealand while the RBA maintains its cautious stance.

EURGBP

The EUR/GBP currency pair has been experiencing significant volatility in 2025 due to a combination of political and macroeconomic factors in both the UK and the Eurozone. The British pound initially weakened amid speculation about the government's ability to service short-term debt, but reassurance from the UK Treasury, combined with persistent inflationary pressures and a hawkish stance from the Bank of England, helped the currency rebound. In May, the euro surged following the announcement of a €500 billion European investment package, which once again weighed on the pound. However, the pound managed to recover some of its losses thanks to renewed rate hike expectations. The most recent weakening of the pound occurred after an emotional parliamentary appearance by UK Chancellor Rachel Reeves, which raised concerns about the credibility of fiscal data and triggered a sell-off in British bonds although Prime Minister Starmer stood by Reeves and no resignation followed. Currently, EUR/GBP is trading at weaker levels for the pound compared to a year ago, as the UK faces long-term challenges such as stagnant economic growth, rising public debt, low investment activity, and political uncertainty ahead of the 2026 elections. According to some reports, the market sentiment toward the euro may be overly optimistic possibly even unrealistic yet any short squeeze in the euro could keep the EUR/GBP pair range-bound, especially if the pound strengthens in the months to come.

AUDCAD

The AUD/CAD currency pair has been trading around the 0.89 level in 2025, showing notable volatility in response to interest rate expectations from the Reserve Bank of Australia (RBA). After the RBA unexpectedly did not cut rates, the Australian dollar outperformed the Canadian dollar. At the same time, Canada, as one of the largest copper exporters, is facing considerable pressure, while Australia is less directly affected by U.S. trade tariffs, unlike Canada, which is already feeling the impact. In the short term, if tensions between Canada and the U.S. escalate, the Australian dollar is likely to remain favored, albeit with continued volatility within a bullish trend.

AUD is also highly sensitive to industrial metal prices especially copper while the Canadian dollar (CAD) is more closely tied to oil prices. Diverging commodity price trends may cause either strengthening or weakening of the pair. From a technical standpoint, AUD/CAD is trading within a tight range and shows signs of a short-term bullish trend, supported by indicators such as RSI and MACD. However, the pair remains exposed to downside risks in the longer term, particularly if Australian demand weakens or if the RBA resumes its rate-cutting cycle.

NZDCAD

The NZD/CAD currency pair is currently under increased downside pressure, especially after worse-than-expected New Zealand retail sales for Q2, which fell by 1.2% quarter-over-quarter (vs. forecast −1.0%) and plunged 3.6% year-over-year. This contrasts with slightly negative but less severe Canadian data, where July retail sales are expected to decline by 0.3%. Technically, NZD/CAD has encountered horizontal resistance, and Ichimoku indicators (Tenkan-sen, Kijun-sen, and Senkou Span A/B), along with the CCI, suggest weakening bullish momentum and rising correction risk. If the CCI drops below zero, it could trigger an accelerated sell-off and push the pair back toward the support area around 0.81. The overall outlook remains cautiously bearish.

U.S. Strike on Iran’s Nuclear Program Sparks Market Reaction – Dollar and Oil Strengthen Amid Geopolitical Tensions

23. 6. 2025 - Josef Brynda

Over the weekend, the United States carried out a targeted strike on infrastructure linked to Iran’s nuclear program. The action came after former President Donald Trump announced he would take 14 days to decide whether to launch a strike against Iran. One potential trigger for the escalation may have been the Iranian leader’s reported refusal to attend a secret meeting with Trump in Istanbul. Markets reacted as expected following the opening of Monday’s premarket – commodities such as oil surged, and the U.S. dollar, traditionally seen as a safe haven in times of crisis, strengthened sharply.

However, oil later gave back much of its initial gains. This could suggest that investors are not yet anticipating an immediate escalation of the conflict, despite the persistent geopolitical risks. The market currently appears to be pricing in a scenario of "controlled retaliation" and continued diplomatic negotiations. Brent crude briefly approached $78 per barrel before correcting downward. Analysts at JPMorgan, however, warn that in the event of broader conflict, oil prices could exceed $120 per barrel.

In the currency markets, the EUR/USD pair opened with a decline of around -0.3%, dropping as low as -0.6% during the morning session. The dollar then gave back most of its gains but regained strength later in the day following weak European economic data and renewed concerns over Middle Eastern instability. It is currently trading approximately 0.5% stronger against the euro. This development underscores investor expectations that the U.S. dollar will remain the preferred asset in an environment of heightened uncertainty.

On Monday morning, preliminary Purchasing Managers’ Index (PMI) data were released for Germany and France. The figures indicated ongoing contraction in both the manufacturing and services sectors. Germany’s manufacturing industry, in particular, remains under pressure, contributing further to euro weakness. At 15:45 CET, the corresponding PMI data for the United States will be released. Expectations are for continued expansion, with the composite PMI likely remaining above the 50-point threshold. A confirmation of this would serve as another driver for the dollar’s strength.

A critical factor in future monetary policy decisions remains inflation, with oil prices playing a central role. Should oil breach the $100 mark, the resulting inflationary pressure would ripple through the entire economy. In such a case, it would be extremely difficult for the Federal Reserve to proceed with any rate cuts, despite earlier market expectations. This potential interest rate divergence between the U.S. and other major economies could continue to favor the U.S. dollar.

Investors will also be closely watching tomorrow’s meeting in The Hague, where NATO member states are set to decide on increasing defense spending. In the current environment of rising geopolitical tension and renewed focus on collective security commitments, the outcome could have a direct impact not only on equity markets but also on the defense sector and related industries.

In conclusion, the key focus remains the unfolding situation in the Middle East and Iran’s promised retaliation. Any escalation is likely to further boost demand for safe-haven assets and could significantly influence the direction of monetary and commodity policy, as well as drive potential corrections in equity markets over the coming weeks.