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FED i

12. 1. 2026 - Josef Brynda 12. 1. 2026 13:23:33

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.

Venezuela Back in Focus as Geopolitical Risk Returns to Global Markets

6. 1. 2026 - Josef Brynda 6. 1. 2026 15:23:55

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.

Daily Analysis 2025/12/22

22. 12. 2025 - Josef Brynda 22. 12. 2025 12:18:10

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.

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

10. 12. 2025 - Josef Brynda 10. 12. 2025 11:39:07

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.

Daily Analysis 2025/12/02

2. 12. 2025 - Josef Brynda 2. 12. 2025 14:22:12

Latest news

USD

The ISM Manufacturing PMI fell to 48.2 (previous 48.7, consensus 48.6), marking the ninth consecutive month below 50, which confirms a weakening industrial sector.
The S&P Global Manufacturing PMI came in at 52.2 vs. 52.5 previously – production is formally growing, but at a slower pace. Combined with the weak ISM, it indicates fading momentum in the U.S. economy.
The U.S. Dollar Index (DXY) slipped to around a two-week low near 99.3, as traders adjust Fed expectations and react to weaker data (e.g., ISM).
Following yesterday’s ISM report, markets now price roughly 87–88% probability of a 25 bp Fed rate cut in December.
Bank of America has just reversed its forecast and now expects a rate cut already at the December meeting, plus two additional 25 bp cuts in June and July 2026.
The Bureau of Economic Analysis announced on Dec 1 changes to GDP and Personal Income & Outlays (PCE) release dates due to the previous government shutdown. Some data will be published later, increasing uncertainty around U.S. macro.
Analyses (e.g., BNP Paribas) have cut the U.S. growth outlook for 2025 to around 1.9% (after ~2.8% in 2024).
Today the USD is mostly stable to slightly weaker, while JPY is softening after a successful Japanese bond auction.
Cyber Monday spending is expected to hit a record ~$14.2 billion (+6.3% y/y), confirming the resilience of U.S. consumers.
While markets expect some easing, the Fed may not be in a hurry to lower rates if inflation remains sticky.
Some analysts project a potential rebound for the dollar later in 2025, especially if the Fed slows its rate cuts or geopolitical tensions heighten.
Global economic and geopolitical uncertainties are likely to continue driving demand for the dollar as a safe-haven asset.

CAD

The S&P Global Canada Manufacturing PMI dropped to 48.4 from 49.6, marking the tenth consecutive month below 50. Trade uncertainties and tariffs are weighing on new orders and production.
On Monday, CAD dipped slightly after the PMI release, with USD/CAD trading around 1.3980 (CAD about –0.1%). However, the loonie still holds last week’s gains that came after surprisingly strong Q3 GDP.
November PMI components show declines in output (48.0) and new orders (47.4). Firms are cutting purchases and slightly reducing employment. This confirms softness in the industrial sector.
CAD gained +0.9% last week (biggest since May) and markets trimmed expectations for more BoC cuts.
According to yesterday’s Reuters commentary, analysts (e.g., Scotiabank) expect the Bank of Canada to hold the policy rate at 2.25%, with markets pricing in about a 90% probability.

EUR

Today All PMI readings are above 50 - services and overall activity in Italy, France, Germany and the whole euro area are in expansion.
Germany is still in expansion, but slowing – current readings are above the forecast, but lower than the previous month.
The preliminary November inflation for the eurozone accelerated to 2.2% (from 2.1%), slightly above forecasts and still only just above the ECB’s 2% target.
Core HICP stayed at 2.4% y/y, while services inflation accelerated to around 3.5%. Energy remains a deflationary component.
The unemployment rose 0.1%, from September 6.3% to 6.4% in October, it is the highest since June last year. This confirms gradual cooling in the labor market.
Reuters’ PMI roundup shows the eurozone joining global manufacturing softness in November, with Germany being the weakest and job cuts becoming more visible.
ECB Governing Council member Joachim Nagel said today that eurozone inflation is “practically” at the target and will oscillate around 2%. The November print of 2.2% is not viewed as an issue by the ECB. This signals a stable, slightly dovish ECB stance.

GBP

Bank of England rate is 4.0 % and markets expect a rate cut to 3.75 % on 18 December.
Inflation is 3.6 %, with core around 3.4 %—still above the 2 % target.
OECD expects UK growth around 1.2–1.4 % in the next two years, with downside risks. Despite this and tax pressures, some analysts believe the UK could be one of the relatively stronger G7 economies in the coming years.
Business surveys show the sharpest slowdown since Covid, with weaker hiring and investment.
Retail sales are slowly rising, but consumer demand is expected to remain soft.
BoE warns of higher financial-stability risks, but banks remain resilient.
Housing market is stabilising, helped by wage growth, but not a major growth engine.
Recent data show that the UK manufacturing sector returned to growth in November 2025 after a long period of weakness

AUD

Australia’s real GDP in Q3 2025 grew by 0.4% quarter-on-quarter and 2.1% year-on-year – the fastest annual growth in two years, though still below market expectations (about 0.7% q/q).
Growth is primarily driven by private investment, especially in AI and cloud-related data centres in New South Wales and Victoria. Machinery and equipment investment rose by 7.6%, and overall business investment by 3.2% in the quarter.
Public investment increased by roughly 3%, supported especially by projects in renewable energy and water infrastructure, significantly contributing to GDP growth.
Household consumption increased by 0.5% q/q and 2.5% y/y, but the structure is uneven :spending on energy, rent and other essentials is rising, discretionary spending on non-essential items is falling.
This reflects continued cost-of-living pressure despite steady consumption.
Households raised their saving rate to approximately 6.4% of disposable income – people are beginning to set aside more rather than spending everything.
Labour productivity in Q3 rose by 0.2% q/q and around 0.8% y/y, which is positive, but unit labour costs remain elevated at around +5.4% y/y. This means wage-driven inflationary pressure remains.
Latest data show annual inflation (October CPI) at roughly 3.8%, which is above the RBA’s 2–3% target and rising slightly again after previous cooling. This increases the risk that the RBA will maintain a hawkish stance and may even need to raise rates again.
Market commentary today suggests the RBA will likely hold the cash rate at 3.60% at the December meeting, but communication will likely stress upside inflation risks, not early rate cuts. If Q4 inflation surprises to the upside, markets expect discussions about a potential hike in 2026.
Governor Michele Bullock once again warned that expansionary fiscal policy (higher government spending) could keep inflation elevated and force the RBA to raise rates in 2026.
Final domestic demand contributed about 1.1 percentage points to annual GDP growth, showing strong internal demand. However, due to fast population growth, GDP per capita is nearly flat – real GDP per capita is only about 0.4% higher than a year ago, meaning living standards are improving only marginally.

NZD

The kiwi has been surprisingly resilient, holding the 0.572–0.575 range despite risk-off sentiment and weaker data from China.
The market is still reacting to the RBNZ’s hawkish rate cut to 2.25% last week – the bank eased policy but signaled the end of the cutting cycle.
New analyses (Forex.com / City Index) say NZD/USD may have found a bottom, with risks now tilted higher thanks to a more neutral RBNZ tone.
Barclays points out strong historical NZD seasonality in December, linked to dairy-export patterns – short-term positive, though long-term trends remain uncertain.
New RBNZ governor Anna Breman told parliament she prioritizes low and stable inflation (~3%), even during weak economic conditions – markets see this as an “orthodox” signal.
Fresh BNZ and Westpac commentary warns about a weaker labor market and pressure on dairy prices.

News summary

EURUSD

The outlook for EURUSD is mixed, with a mildly supportive short-term bias for the euro but limited upside potential. PMI data show services and overall activity back above 50 across the euro area, inflation is effectively at target around 2.2%, and the ECB signals a calm, slightly dovish stance with little concern over the latest inflation uptick. Meanwhile, in the U.S., weakening industrial data, rising certainty of a December Fed cut are weighing on the dollar. This creates scope for modest near-term EURUSD upside if there is no negative shock from the euro area. Over the medium term, however, the risk remains that Fed easing slows or that geopolitical tensions increase, which would restore the dollar’s safe-haven appeal and could turn EURUSD lower again. At the same time, it should be noted that Europe is slightly lagging in technological innovation in areas such as AI, due both to capacity constraints and structurally higher input costs. In the longer term, the economy that is able to invest in technology most efficiently will gain an advantage, because it is precisely technological improvements that shift the long-run aggregate supply (potential output) curve to the right.

USDCAD

USDCAD is currently balancing between softer U.S. macro data and a relatively resilient Canadian economy. The market has almost fully priced in a Fed rate cut in December, which is pushing the DXY to two-week lows. However, many analysts point out that the market may be overestimating the number of rate cuts, as inflation is still above target and unemployment is at a level the U.S. has been aiming for over many years. This could play a significant role after the Fed meeting: even with a rate cut, the U.S. dollar could strengthen if Jerome Powell’s communication turns out to be more hawkish. By contrast, the CAD – despite the PMI having dropped well below 50 and a weak industrial sector – is supported by strong Q3 GDP and by the fact that markets are scaling back bets on further BoC cuts; policy is expected to remain steady around 2.25%. A relatively faster shift by the Fed toward monetary easing compared with a “wait-and-see” BoC implies a mildly bearish bias for USDCAD (i.e. a move lower), especially if U.S. data continue to disappoint. At the same time, the overall weakness of the Canadian dollar is being amplified by U.S. tariff policy and constraints on Canadian exports to the U.S. Over the longer term, this could weigh on Canada’s economic growth and force the BoC to cut rates more quickly.

AUDUSD

For AUDUSD, the near-term macro backdrop appears relatively constructive for the Australian dollar. Australia benefits from solid growth, an investment boom, a tight labor market, and inflation above target, keeping the RBA in a hawkish posture and open to the possibility of further tightening in 2026. In contrast, the U.S. faces cooling industrial activity. and an almost fully priced-in December Fed cut. This policy divergence supports a positive bias for AUDUSD in the short to medium term. On the other hand, the far-from-ideal situation in China, where authorities are repeatedly attempting to generate inflationary pressures and revive domestic consumption without much success, continues to act as a constraint on the Australian dollar’s upside potential. In the short term, a rise in AUDUSD can be expected, but subsequently the pair is likely to shift into a more sideways, range-bound phase.

AUDNZD

The AUDNZD cross brings together two relatively “hawkish” commodity currencies, but with different underlying stories. Australia is benefiting from solid growth driven by investment in AI and infrastructure, inflation has re-accelerated to around 3.8%, and the RBA clearly signals that risks are tilted toward higher rates or at least a prolonged period of restrictive policy. This is structurally supportive for the AUD. On the other hand, the NZD is supported by the fact that the RBNZ, although it recently cut rates, did so in a “hawkish” manner, signaled the end of the easing cycle, and the new governor emphasized price stability as a priority. In addition, December seasonality typically favors the NZD. In the near term, AUDNZD is therefore likely to remain range-bound and could even drift slightly lower in favor of the NZD due to seasonal effects. In the medium term, however, the bias shifts mildly higher for AUDNZD if markets start to price in a greater risk of future RBA tightening and Australian growth remains above average.

EURGBP

EURGBP reflects two economies with subdued growth and easing biases but at different points in the policy cycle. In the euro area, PMIs have returned above 50 and inflation is only slightly above target, allowing the ECB to remain relatively comfortable with a stable-to-mildly easier stance. In the UK, the policy rate stands at 4%, markets expect a cut to 3.75% in December, and inflation remains clearly above target. Business surveys show the sharpest slowdown since the pandemic, while growth expectations remain modest despite some stabilization in retail sales and housing. This suggests that the BoE may be forced into rate cuts sooner or more decisively than the ECB, which would argue for a moderately higher EURGBP. A stronger-than-expected UK rebound would reverse this bias, but for now the balance of risks favors sideways trade with a slight upward tilt.

AUDCAD

On AUDCAD, the fundamental balance currently tilts slightly in favor of the AUD. Australia is recording its fastest growth in two years, underpinned by strong investment in AI and infrastructure, resilient domestic demand, and inflation back above target, all of which keep the RBA in a distinctly hawkish communication mode. Canada, by contrast, shows solid headline GDP but a manufacturing sector in deeper contraction, with firms cutting purchases and modestly reducing employment. The BoC is seen as firmly on hold rather than leaning toward renewed tightening. This relative divergence in inflation dynamics and policy tone gives AUDCAD a modestly bullish bias. A sharp deterioration in global risk sentiment or a clear slowdown in Australian domestic demand would be the main risks to this outlook.

NZDCAD

NZDCAD reflects two contrasting but nuanced narratives. The NZD continues to show surprising resilience despite risk-off sentiment and softer China-related news, supported by the RBNZ’s hawkish rate cut, signals that the easing cycle may be ending, and historically strong December seasonality. The CAD, meanwhile, has recently strengthened on the back of robust GDP data and reduced expectations for further BoC cuts, but still faces a deeply contractionary manufacturing sector and signs of cooling in real activity. In the near term, NZD may retain a slight advantage due to seasonal and policy-tone factors, which would favor some upside in NZDCAD. However, if Canadian data remain firm—particularly through exports or commodity support—while the New Zealand labor market and dairy sector weaken further, the CAD could reassert itself and keep NZDCAD locked in a broad sideways range.

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

25. 11. 2025 - Josef Brynda 25. 11. 2025 13:37:58

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 4. 11. 2025 14:38:56

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.

Daily Analysis 2025/10/23

23. 10. 2025 - Josef Brynda 23. 10. 2025 15:24:01