IC Markets Europe Fundamental Forecast | 18 September 2025

IC Markets

Commodity

Forex

Economic

Summary:

Today’s Asia session was defined by the fallout from the Fed’s quarter-point rate cut and Australia’s worse-than-expected jobs data, which pressured the AUD and weighed on local equities.

What happened in the Asia session?

Today’s Asia session was defined by the fallout from the Fed’s quarter-point rate cut and Australia’s worse-than-expected jobs data, which pressured the AUD and weighed on local equities. Regional equities were mixed, with Japan’s Nikkei continuing to set the pace, while safe-haven flows supported the yen and gold. Markets are now awaiting outcomes from the BOJ meeting and Japanese inflation data later in the week.

What does it mean for the Europe & US sessions?

Today’s trading environment is characterized by central bank caution amid persistent inflation concerns. The BoE is expected to pause rate cuts despite economic weakness, while the Fed’s measured approach has strengthened the dollar and pressured commodities. Employment data from Australia and the US both show labor market softening, though inflation remains the primary concern for policymakers globally. Traders should monitor any dovish surprises from the BoE and manufacturing data for signs of economic momentum shifts.

The Dollar Index (DXY)

Thursday’s dollar performance reflected the ongoing market adjustment to the Fed’s dovish pivot, with the currency showing modest strength despite underlying concerns about labor market deterioration. The dollar’s recovery from Wednesday’s lows suggests markets are taking a more balanced view of the Fed’s cautious approach to further easing, though significant uncertainty remains about the pace of future rate cuts.Central Bank Notes:

● The Federal Open Market Committee (FOMC) voted, by majority, to lower the federal funds rate target range by 25 basis points to 4.00%–4.25% at its September 16–17, 2025, meeting, marking the first policy rate adjustment since December 2024 after five consecutive holds.

● The Committee maintained its long-term objective of achieving maximum employment and 2% inflation, acknowledging recent labor market softening and continued tariff-driven price pressures.

● Policymakers expressed elevated concern about downside risks to growth, citing a stalling labor market, modest job creation, and an unemployment rate drifting up toward 4.4%. At the same time, inflation remains above target, with CPI at 3.2% and core inflation at 3.1% as of August 2025; higher energy and food prices, largely attributable to tariffs, continue to weigh on headline measures.

● Although economic activity expanded at a moderate pace in the third quarter, the growth outlook has weakened. Q3 GDP growth is estimated near 1.0% (annualized), with full-year 2025 GDP growth guidance revised to 1.2%, reflecting slowing household consumption and tighter financial conditions.

● In the updated Summary of Economic Projections, the unemployment rate is projected to average 4.5% for the year, with headline PCE inflation revised up slightly to 3.1% for 2025. The Committee anticipates core PCE inflation to remain stubborn, requiring sustained vigilance and a flexible approach to risk management.

● The Committee reiterated its data-dependent approach and openness to further adjustments should employment or inflation deviate meaningfully from current forecasts. Several members dissented, either advocating a larger 50-basis-point cut or preferring no adjustment at this meeting, revealing heightened divergence within the Committee.

● Balance sheet reduction continues at a measured pace. The monthly Treasury redemption cap remains at $5B and the agency MBS cap at $35B, as the Board aims to support orderly market conditions in the face of evolving global and domestic uncertainty

● The next meeting is scheduled for 28 to 29 October 2025.

Next 24 Hours BiasWeak Bearish

Gold (XAU)

Gold’s performance on September 18, 2025, reflects a classic “buy the rumor, sell the news” reaction to the Fed’s rate cut decision. While prices pulled back from record highs, the fundamental backdrop remains supportive with continued central bank buying, geopolitical tensions, dollar weakness, and expectations for further monetary policy easing. The precious metal has gained an impressive 39% year-to-date, and despite near-term volatility, analysts remain constructive on gold’s longer-term trajectory toward the $4,000 level and beyond.Next 24 Hours Bias Strong Bullish

The Euro (EUR)

The euro showed resilience despite minor Thursday weakness, maintaining near four-year highs against the dollar. Key supportive factors include eurozone inflation stabilizing at the ECB’s 2% target, improved economic growth projections, and market expectations that the central bank’s rate-cutting cycle has concluded. However, ongoing trade policy uncertainty and mixed economic indicators suggest cautious optimism, with the ECB maintaining its data-dependent approach while emphasizing that the disinflationary process is complete.Central Bank Notes:

● The Governing Council kept the three key ECB interest rates unchanged at its September 11, 2025, meeting. The main refinancing rate remains at 2.15%, the marginal lending facility at 2.40%, and the deposit facility at 2.00%. These levels have been maintained after the cuts earlier in 2025, reflecting the Council’s confidence that the current stance is consistent with the price stability mandate.

● Evidence that inflation is running close to the ECB’s medium-term target of 2% supported the decision to hold rates steady. Domestic price pressures are easing as wage growth continues to moderate, and financing conditions remain accommodative. Policymakers reaffirmed a data-dependent, meeting-by-meeting approach to further policy moves, with no pre-commitment to a predetermined path amid ongoing global and domestic risks.

● Eurosystem staff projections foresee headline inflation averaging 2.0% for 2025, 1.8% for 2026, and 2.0% in 2027. The 2025 and 2026 forecasts reflect a downward revision, primarily on lower energy costs and exchange rate effects, even as food inflation remains persistent. Core inflation (excluding energy and food) is expected at 2.0% for both 2026 and 2027, with only minor changes since prior rounds.

● Real GDP growth in the euro area is projected at 1.1% for 2025, 1.1% for 2026, and 1.4% for 2027. A robust first quarter—partly due to firms accelerating exports ahead of anticipated tariff hikes—cushioned a weaker outlook for the remainder of 2025. While business investment continues to face uncertainty from ongoing global trade disputes, especially with the US, government investment and infrastructure spending are expected to provide some support to the outlook..

● Household spending is backed by rising real incomes and continued strength in the labor market. Despite some fading tailwind from previous rate cuts, financing conditions remain broadly favorable and are expected to underpin the resilience of private consumption and investment against outside shocks. Moderating wage growth and profit margin adjustments are helping to absorb residual cost pressures.

● All future interest rate decisions will continue to be guided by the integrated assessment of economic and financial data, the inflation outlook, and underlying inflation dynamics, and the effectiveness of monetary policy transmission—without any pre-commitment to a specific future rate path.

● The ECB’s Asset Purchase Programme (APP) and Pandemic Emergency Purchase Programme (PEPP) portfolios are declining predictably, as reinvestment of maturities has ceased. Balance-sheet normalization continues in line with the ECB’s previously communicated schedule.

● The next meeting is on 29 to 30 October 2025

Next 24 Hours BiasMedium Bullish

The Swiss Franc (CHF)

The Swiss Franc continues to attract safe-haven flows as global uncertainty lingers, with its value versus the USD and other major currencies close to recent highs. The Swiss National Bank is expected to hold rates steady, and no major new data or surprises are anticipated today. Global strategists view CHF as a preferred safe-haven, particularly in comparison to the Japanese yen, given Switzerland’s fiscal stability and prudent central bank policy.Central Bank Notes:

● The SNB eased monetary policy by lowering its key policy rate by 25 basis points, from 0.25% to 0% on 19 June 2025, marking the sixth consecutive reduction.

● Inflationary pressure has decreased further as compared to the previous quarter, decreasing from 0.3% in February to -0.1% in May, mainly attributable to lower prices in tourism and oil products.

● Compared to March, the new conditional inflation forecast is lower in the short term. In the medium term, there is hardly any change from March, putting the average annual inflation at 0.2% for 2025, 0.5% for 2026, and 0.7% for 2027.

● The global economy continued to grow at a moderate pace in the first quarter of 2025, but the global economic outlook for the coming quarters has deteriorated due to the increase in trade tensions.

● Swiss GDP growth was strong in the first quarter of 2025, but this development was largely because, as in other countries, exports to the U.S. were brought forward.

● Following the strong first quarter, growth is likely to slow again and remain rather subdued over the remainder of the year; the SNB expects GDP growth of 1% to 1.5% for 2025 as a whole, while also anticipating GDP growth of 1% to 1.5% for 2026.

● The SNB will continue to monitor the situation closely and will adjust its monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term.

● The next meeting is on 25 September 2025.

Next 24 Hours BiasMedium Bullish

The Pound (GBP)

Sterling’s recent gains reflect cautious optimism pending BoE policy outcomes, but upside is seen as limited unless economic data surprises or the BoE signals a policy shift. Overall, market focus today is on the tone of the BoE statement and any hints about future rate cuts. Labor market data shows stable unemployment at 4.7%, wage growth of 4.8% (excluding bonuses), and a slight fall in payrolls by 8,000—broadly in line with forecasts and suggesting a gradually slowing jobs market.Central Bank Notes:

● The Bank of England’s Monetary Policy Committee (MPC) voted on 18 September 2025 by a majority (expected split likely 7–2 or 6–3) to hold the Bank Rate steady at 4.00%, following the August rate cut. Most members cited persistent inflation and mixed indicators on growth and employment, while a minority favored further easing due to the cooling labor market and subdued GDP growth.

● The Committee decided to decrease the pace of quantitative tightening, planning to reduce the stock of UK government bond purchases by £67.5 billion over the next 12 months instead of the prior £100 billion pace, with the gilt balance now standing near £558 billion. This reflects increased volatility in bond markets and a shift to a more gradual approach.

● Headline inflation rose unexpectedly to 3.8% in July and is projected at 4% for September, above the Bank’s 2% target. Price pressures are driven by regulated energy costs and ongoing food price increases. While previous disinflation has been substantial, core inflation remains elevated and sticky.

● The MPC expects headline inflation to remain above target through Q4, with a resumption of the downward trend projected for early 2026 as energy and regulated price pressures abate. The Committee remains watchful for signs of persistent inflation despite previous policy tightening.

● UK GDP growth is stagnant, with business and consumer activity subdued. Recent labor market data show rising unemployment rates (now at 4.7%) and stabilizing wage growth (holding near 5%), indicating slack but continued wage price pressure. The Committee remains cautious amid lackluster demand and soft survey sentiment.

● Pay growth and employment indicators have moderated further, alongside confirmation from business surveys that pay settlements are slowing. The Committee expects wage growth to decelerate significantly through Q4 and the rest of 2025.

● Global uncertainty persists due to volatile energy prices, supply chain disruptions linked to Middle East conflicts, and renewed trade tensions. The MPC remains vigilant in tracking transmission of external cost/wage shocks to UK inflation.

● Risks to inflation are considered two-sided. While subdued domestic growth and softening labor activity suggest scope for easing, persistent inflation requires caution. The MPC anticipates a slow, gradual reduction path in rates, continuing its data-dependent approach with careful adjustment as warranted by economic developments.

● The Committee’s bias remains toward maintaining a restrictive monetary policy stance until firmer evidence emerges that inflation will return sustainably to the 2% target. All future decisions will remain highly data dependent, with a strong emphasis on evolving demand, inflation expectations, costs, and labor market conditions.

● The next meeting is on 6 November 2025.

Next 24 Hours BiasMedium Bullish

The Canadian Dollar (CAD)

The Canadian dollar remains under slight pressure following the rate cut, with the central bank signaling flexibility for further action if economic weakness persists. Traders are awaiting the US Federal Reserve signals and watching oil prices and trade policy for further direction. The USD/CAD exchange rate is currently around 1.3760, with CAD to USD at about 0.726. Exchange rates have fluctuated in a relatively tight range over the past week, and CAD is up about 0.7% weekly after the rate cut.Central Bank Notes:

● The Bank of Canada reduced its target for the overnight rate to 2.50% at its September 17 meeting, with the Bank Rate at 2.75% and the deposit rate at 2.25%. This marks the first rate cut since early 2025, as the Bank responded to a string of softer inflation prints and persistent economic headwinds.

● The Council cited continued U.S. tariff volatility and slow progress on trade negotiations as major contributors to ongoing uncertainty. While headline tariffs have not escalated further, the unpredictability of U.S. policy remains a significant risk for Canadian exports and business confidence.

● Uncertainty about U.S. trade policy and recurring tariff threats continued to weigh on growth prospects. The Bank flagged downside risks to the export sector, with survey data indicating ongoing hesitancy among manufacturers and exporters.

● After modest growth in Q1, Canada’s economy slipped into contraction, with GDP shrinking by 0.8% in Q2 and forecast to decrease again by 0.8% in Q3. Economic weakness has been most pronounced in manufacturing and goods-producing sectors affected by trade frictions and softer U.S. demand.

● Early estimates show that growth stabilized in September but remained well below the Bank’s 2% forecast for Q4. Manufacturing output has improved slightly—supported by a modest rebound in petroleum and mining activity—while consumer spending and retail sales were largely flat.

● Consumer spending remained subdued as households continued to limit discretionary purchases amid uncertainty and a slower job market. Housing activity stayed weak, despite earlier government efforts to boost affordability and modest gains in some real estate segments.

● Headline CPI inflation edged up to 1.9% in August, undershooting economist expectations but still showing emerging pressures from shelter and imported goods costs. Core inflation metrics were mixed, though price growth remains just below the Bank’s 2% target.

● The Governing Council reaffirmed its cautious approach, emphasizing that while further rate cuts are possible, the pace will hinge on the path of U.S. tariffs, domestic inflation dynamics, and signs of a sustainable recovery. The Bank remains vigilant against the risk of inflation falling below target in the face of economic slack.

● The next meeting is on 29 October 2025.

Next 24 Hours BiasWeak Bearish

Oil

Oil markets on September 18, 2025, reflect a complex interplay of bearish supply-demand fundamentals and ongoing geopolitical risks. While the Federal Reserve’s rate cut provides potential longer-term demand support, immediate concerns about U.S. economic weakness, rising distillate inventories, and OPEC+ production increases are keeping prices under pressure. The market continues to trade within its established $5 range, with Brent around $68 and WTI near $64, as traders await clearer signals about global economic recovery and supply disruption risks from the ongoing Russia-Ukraine conflict.

Next 24 Hours BiasMedium Bearish

Source: IC Markets

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Olivia Brooks

Economic

The dollar strengthened against all of its major peers as investors interpreted the Federal Reserve’s policy outlook as being less dovish than earlier envisaged.

Bloomberg’s gauge of the US currency advanced as much as 0.4%, the biggest intraday gain in two weeks, as investors trimmed bets on future Fed interest-rate cuts after Wednesday’s policy decision. The New Zealand dollar and South Korean won led declines.

“While further rate cuts have been signaled, the pace and size of moves may not be as dynamic as some of the recent market speculation has hinted at,” said Jane Foley, a strategist at Rabobank in London. “Since a lot of Fed easing was priced in ahead of yesterday’s meeting and given the market has been short dollars for some time, the tone thus triggered a little covering of dollar shorts.”

The Fed lowered its benchmark rate by a quarter percentage point Wednesday — as economists forecast — and penciled in two more reductions this year following months of pressure from the White House to slash borrowing costs. But with the effects of tariffs on inflation still uncertain, Fed Chair Jerome Powell made clear officials will face difficult trade-offs in the coming months as they consider whether to keep cutting.

“Currency investors are squaring their dollar shorts after the Fed failed to validate the uber dovish market expectations ahead of its September policy meeting,” said Valentin Marinov, strategist at Credit Agricole SA in London.

Source: Bloomberg Europe

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Gerik

Economic

ADNOC-Santos Bid Collapses Over Risk Allocation and Valuation Conflicts

The most recent example of a major M&A deal falling apart is the abandoned $18.7 billion bid by a consortium led by the Abu Dhabi National Oil Company (ADNOC) for Australian gas producer Santos. Despite months of negotiation, the parties could not reach consensus on commercial terms. According to Santos, the consortium refused to accept a balanced distribution of regulatory and domestic development responsibilities.

ADNOC’s offer of $5.76 per share (A$8.89) significantly overshot Santos’ last traded price of A$6.74, but the deal fell through due to risk-sharing concerns. This episode reflects a clear causal link between transaction complexity and deal failure in the Australian regulatory context.

BHP-Anglo American: Structural Conditions Proved Too High a Barrier

In 2024, BHP’s $49 billion proposal to acquire Anglo American was withdrawn after being rejected three times. A key impediment was BHP’s condition that Anglo spin off its South African assets a restructuring that proved unacceptable. BHP’s valuation of Anglo at 29.34 pounds per share failed to gain traction, with Anglo last trading at 25.18 pounds.

The collapse of this bid illustrates how deal architecture, particularly around regional operations, can become a non-negotiable obstacle.

Woodside and Santos Merger Talks Disintegrate on Valuation Misalignment

Earlier in 2024, another major domestic tie-up failed when merger discussions between Woodside Energy and Santos valued collectively at over A$80 billion came to an end. The companies were reportedly unable to bridge gaps in valuation expectations. This case again demonstrates a strong correlation between mismatched valuation models and negotiation breakdowns, particularly in capital-intensive sectors like oil and gas.

In late 2023, Brookfield’s $10.6 billion bid, alongside MidOcean Energy, to acquire Origin Energy was defeated not by regulators or valuation disagreements, but by shareholder voting dynamics. Despite a relatively strong offer of A$9.53 per share, only 69% of shareholders voted in favor below the mandatory 75% approval threshold.

Origin’s stock later rose to A$12.41, suggesting that many shareholders viewed the offer as undervalued. This outcome shows how valuation disputes can manifest indirectly through shareholder resistance, even when board-level agreements appear close.

Albemarle-Liontown Deal Derailed by Transactional Complexities

U.S.-based Albemarle abandoned a A$6.6 billion bid for lithium producer Liontown Resources in 2023 due to what the company described as “growing complexities.” These were not fully disclosed but likely included political sensitivity around critical minerals and ownership, as well as valuation skepticism. Despite offering A$3 per share, Liontown’s stock later plummeted to 91 cents, further raising questions about pricing volatility and sector risk.

The 2022 A$88-per-share offer by private equity giant KKR for Ramsay Health Care was withdrawn after disagreements over access to European subsidiary Ramsay Sante’s financials. Ramsay’s performance struggles were cited by KKR as justification for walking away, with shares falling to A$32.95 by the time talks ended. The refusal to grant due diligence rights, coupled with deteriorating financials, directly triggered the breakdown, suggesting that even initial strong offers can falter when transparency and access are restricted.

These high-profile failures reveal consistent themes in Australia’s mergers and acquisitions landscape. Whether due to valuation mismatches, unappealing deal structures, shareholder resistance, or regulatory risk, the environment remains fraught with obstacles. The Santos case now marking the third failed acquisition attempt in under a decade demonstrates a recurring pattern where even well-capitalized bidders with strategic alignment are unable to cross the finish line.

The repeated inability to close large transactions may prompt both domestic firms and international suitors to reconsider deal-making strategies in Australia. In particular, deal success will increasingly depend on achieving balanced risk-sharing, securing regulatory cooperation early, and maintaining transparent communication with shareholders. Without addressing these persistent friction points, mega-deals in Australia may continue to fall short of completion despite robust initial interest.

Source: Reuters

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Gerik

Economic

First 2025 Rate Cut Marks Shift in Fed’s Cautious Stance

The Federal Reserve has implemented its first interest rate cut of 2025, lowering the federal funds target range to 4.00%–4.25% following a split vote. The 25 basis point reduction is intended to counter emerging signs of labor market deterioration while still contending with inflation that remains above the central bank’s 2% target.

The move breaks a nine-month pause in rate adjustments since December 2024 and is accompanied by forward guidance projecting two more cuts before year-end.

Internal Divisions Reflect Broader Uncertainty

While the cut gained majority support, dissent from newly appointed Fed Governor Stephen Miran highlighted ongoing divisions within the Federal Open Market Committee. Miran, a former economic adviser to President Trump, advocated for a more aggressive 50 basis point cut, signaling a preference for faster monetary accommodation.

Fed Chair Jerome Powell responded firmly during his press conference, stating there was no widespread support for a half-point move and reinforcing the institution’s commitment to independence. The divergence of views seen in the latest dot plot confirms a persistently fractured outlook among Fed officials. Nine expect three cuts this year, six foresee just one, while others diverge more widely ranging from no cuts to as many as six.

Labor Market Weakness Justifies Policy Shift

Recent labor market data provided the immediate backdrop for the policy change. August’s job creation figure came in at just 22,000, while the unemployment rate ticked up to 4.3%. More strikingly, June’s job numbers were revised into negative territory, showing a loss of 13,000 jobs.

This sequence of slowing growth, coupled with downward revisions, signals a weakening employment landscape. The Fed explicitly acknowledged this shift, removing prior references to a "solid" labor market in its policy statement. The causal link between softening employment and the decision to cut rates is clear, with policymakers hoping to prevent further deterioration in hiring and wage growth.

Inflation Remains Elevated, Limiting Flexibility

Despite easing labor conditions, inflation has remained stubborn. The latest Consumer Price Index report showed core inflation at 3.1% in August unchanged from July and still far above the Fed’s 2% target. Policymakers must now navigate this persistent inflationary backdrop while attempting to bolster employment. The Fed's updated projections maintain an inflation estimate of 3.1% for 2025 and revise GDP growth upward to 1.6% from a previous 1.4%, suggesting modest optimism about economic momentum even in a high-inflation environment.

Political Interference Raises Concerns Over Fed Independence

The decision comes amid increasing political friction between the Fed and the White House. President Trump has publicly accused Powell of being too slow to cut rates and has worked to reshape the central bank’s composition. His appointment of Miran to the Fed board, timed just ahead of this policy meeting, was widely seen as an attempt to shift policy direction.

Simultaneously, Trump has attempted to remove Governor Lisa Cook, only to be blocked by multiple court rulings. Powell avoided direct commentary on the legal battles but reiterated the Fed’s intent to maintain its independence. These developments reflect a growing tension between political agendas and the Fed’s dual mandate.

Dot Plot Reveals Widening Policy Disagreement

The updated dot plot showed that Fed officials remain divided not only on short-term rate policy but also on the broader trajectory into 2026. For the remainder of 2025, the median projection points to two additional rate cuts, with one further cut expected in 2026.

However, the range of projections is unusually wide, revealing deep uncertainty about how the economy will respond to ongoing policy shifts and external shocks, including those related to trade policy, immigration, and taxation under the current administration. This variation suggests a high level of ambiguity in forecasting, reinforcing Powell’s comment that “there is no risk-free path.”

Navigating Inflation, Employment, and Political Risk

The Federal Reserve’s first rate cut of 2025 marks a pivotal shift in policy, driven largely by signs of a weakening labor market. Yet, elevated inflation and rising political pressure complicate the path forward. With two more cuts projected and Fed leadership facing increasing scrutiny from the executive branch, monetary policy is entering a period of heightened complexity.

The challenge for Powell and his colleagues will be maintaining credibility and consistency while resisting political interference and ensuring that rate policy remains responsive to real economic conditions rather than external demands. The months ahead will likely test the Fed’s institutional resilience as it seeks to fulfill its dual mandate under intensifying external constraints.

Source: Yahoo Finance

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Economic

Sharp Export Contraction Follows US Tariff Implementation

The introduction of a 39% tariff on Swiss goods by the United States reportedly the highest among developed nations had a swift and pronounced effect on trade flows. Data from Swiss customs showed that seasonally adjusted exports to the U.S. fell by 22% in August compared to the previous month, the first full period under the new tariff regime.

This marks one of the largest month-on-month declines since 2020 and indicates a strong causal relationship between the implementation of the tariff and the reduction in export activity.

Sectoral Breakdown Reveals Watchmakers Among the Hardest Hit

Among the goods affected by the tariff, watches a flagship Swiss export saw an 8.6% decline from July. The luxury watch industry, highly dependent on the U.S. market, is particularly vulnerable to cost increases and consumer demand shifts triggered by trade barriers.

Pharmaceuticals, while not targeted by the new tariffs, still registered a 1.3% dip in exports, suggesting that broader economic uncertainty or shipping bottlenecks may be influencing even unaffected sectors through a correlational mechanism.

Trade Deficit Narrows Sharply as Swiss Shipments Drop

The plunge in Swiss exports led to a notable narrowing of the U.S. trade deficit with Switzerland. The goods trade gap fell to 2.06 billion francs ($2.6 billion), down from 2.93 billion francs the prior month its second-lowest level since 2020.

This data appears to validate the initial objective cited by U.S. President Donald Trump when announcing the tariff on August 1, which came into effect on August 8: to reduce the bilateral trade imbalance. However, while the deficit narrowed, it came at the cost of significant economic disruption for Swiss exporters.

Diplomatic Efforts and Agricultural Tensions Shape Ongoing Talks

Despite a last-minute effort by the Swiss government to avert the tariffs, negotiations with the U.S. have so far yielded no resolution. Washington has hinted at a possible agreement, with Commerce Secretary Howard Lutnick suggesting a deal “probably” will be reached, though specifics remain elusive.

For Switzerland, striking a deal is complicated by domestic resistance to liberalizing agricultural imports particularly beef and poultry which are politically sensitive due to strong public support for self-sufficiency. The reluctance of Swiss farming lobbies to make concessions underscores the domestic political constraints that limit Switzerland’s negotiating flexibility.

Offsetting Losses Through Diversification and European Demand

Although U.S. trade took a significant hit, the overall damage to Swiss exports was limited. Shipments to other markets, particularly within Europe France, Austria, and Poland as well as to Canada and Mexico, helped cushion the blow. Total exports declined only 1% month-on-month, suggesting a degree of resilience and adaptability in Switzerland’s trade portfolio.

The modest retreat indicates that while the U.S. market is important, it is not irreplaceable in the short term, and diversification efforts are bearing fruit.

Strategic Pivot Toward Latin America Gains Urgency

In a bid to reduce dependency on U.S. markets, Switzerland has accelerated trade diversification. A notable development is the recent signing of a free trade agreement with Mercosur, the South American trade bloc.

This move is part of a broader strategic realignment that seeks to minimize exposure to unilateral trade shocks and expand access to emerging economies. While such agreements may not immediately compensate for lost U.S. demand, they reflect a proactive shift in Swiss trade policy toward long-term risk mitigation.

Rising Protectionism Forces a Recalibration of Swiss Trade

The sharp drop in Swiss exports to the U.S. highlights the immediate and disruptive effects of protectionist trade measures. While Switzerland’s overall export engine remains stable for now, the escalating tariff conflict underscores the fragility of bilateral economic ties under political strain.

The ongoing talks, combined with domestic sensitivities and the broader global trade environment, suggest that even historically neutral countries like Switzerland are not insulated from the ripple effects of global trade disputes. The next few months will be critical as Bern navigates both diplomacy and diversification to protect its economic interests.

Source: Bloomberg

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Economic

Tariff Revenue Redirected Toward Agricultural Relief

The Trump administration is actively exploring the option of deploying revenue from tariffs to finance a new aid package for American farmers, according to Agriculture Secretary Brooke Rollins in an interview with the Financial Times.

This proposal comes in response to growing calls from agricultural groups for federal intervention, as U.S. farmers continue to bear the brunt of retaliatory trade measures and rising production costs linked to the escalating U.S.–China tariff conflict.

Economic Pressures Mount Amid Soybean Suspension and Input Inflation

The trade standoff between Washington and Beijing has had particularly sharp consequences for American agriculture. China’s decision to halt purchases of U.S. soybeans a key export for Midwestern states has disrupted supply chains and severely undercut farm revenues.

Simultaneously, the imposition of tariffs has elevated the cost of essential farming inputs such as fertilizers, equipment, and machinery, eroding profit margins and weakening the sector’s resilience. The convergence of these factors indicates a direct causal relationship between U.S. trade policy and the financial distress currently affecting large segments of the American farming community.

Rollins Signals Imminent Policy Action Using Domestic Revenue

While Rollins did not confirm the immediate launch of the bailout plan, she noted that an announcement could be forthcoming and emphasized that tariff-derived funds are “absolutely a potential” financing mechanism.

The use of tariff income in this context reflects a policy attempt to transform trade penalties originally designed to pressure foreign governments into a domestic fiscal buffer for politically sensitive sectors like agriculture. This approach also signals a strategic effort to redirect politically controversial trade gains into a form of economic support for constituencies hurt by the very same trade measures.

Political and Trade Implications

The proposed bailout underscores the broader strategic balancing act facing the Trump administration. While tariffs are framed as tools for asserting economic sovereignty and reshaping trade terms with China, their unintended domestic consequences are increasingly apparent.

Agriculture has become one of the most politically and economically sensitive sectors in the U.S.–China trade rivalry, and the administration’s responsiveness to farm-state pressures may reflect not only economic urgency but also electoral calculations as the farming belt remains a crucial voting bloc.

The potential repurposing of tariff revenue into farmer support programs highlights how trade conflict fallout is being redirected into domestic economic relief. If implemented, such a bailout would represent a circular policy mechanism in which the proceeds from a trade war are used to cushion the sectors most damaged by that very war. As the U.S. agricultural sector continues to face declining exports and higher input costs, the effectiveness and timeliness of such financial interventions will be critical in stabilizing rural economies and maintaining political support.

Source: FT

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Economic

Monetary Policy Outlook Unlikely to Shift Under Takaichi’s Potential Premiership

While markets have been closely watching Japan’s political landscape in the lead-up to the Liberal Democratic Party leadership election on October 4, former Bank of Japan executive Tomoyuki Shimoda has cautioned against overestimating the policy implications of a potential win by Sanae Takaichi.

Known for her endorsement of aggressive monetary easing and fiscal expansion modeled on the late Shinzo Abe’s Abenomics, Takaichi’s candidacy has raised speculation that the BOJ may delay further tightening. However, Shimoda emphasizes that the Bank is likely to maintain its current trajectory toward normalization, especially if incoming economic data continues to support such a move.

Market Reactions to Political Signals May Be Premature

Anticipation of Takaichi’s win has already influenced market behavior, with some investors buying Japanese government bonds and the yen under the assumption that BOJ tightening may stall. However, Shimoda believes this view overlooks the structural independence of the central bank and the broader macroeconomic forces at play. According to him, the ability of any incoming prime minister, including Takaichi, to reshape BOJ policy is inherently constrained, particularly if those policies risk exacerbating inflationary pressures or triggering currency depreciation beyond acceptable levels.

Weak Yen Adds Complexity to Policy Decisions

The yen's trajectory remains a key variable. Although a weaker yen generally benefits exporters by making Japanese goods cheaper abroad, it also raises import prices and contributes to elevated domestic inflation. Shimoda warns that any further depreciation particularly if the yen falls below 150 per dollar could provoke resistance from both domestic policymakers and the United States, which is currently pursuing a weak-dollar strategy.

In this context, even a pro-easing administration may find it politically and economically unviable to oppose rate hikes if they risk triggering international criticism or worsening domestic inflation.

Economic Conditions Strengthen the Case for a Rate Hike

The former central bank official highlights a range of domestic indicators that support further tightening. Corporate profits remain stable, and persistent labor shortages are expected to drive wage growth, while sustained food price increases continue to push inflation above the BOJ's 2% target.

If stock markets remain resilient and the BOJ’s tankan survey on October 1 shows no significant deterioration in business sentiment, Shimoda anticipates the central bank will likely proceed with a rate hike during its October 29–30 meeting. This underscores a causal relationship between these domestic economic indicators and the likelihood of monetary policy adjustment.

Uncertainty Persists Over Timing but Direction Is Clear

While the BOJ is widely expected to hold interest rates steady at 0.5% in the upcoming meeting ending Friday, a Reuters poll of economists reflects a consensus around at least one more 25-basis-point increase by year-end.

The exact timing remains uncertain, with forecasts split between October and January. However, the overall direction points toward gradual normalization. This continuation of tightening is consistent with the BOJ's signaling since it exited its decade-long stimulus regime and raised rates to 0.5% in January, viewing inflation as having met the threshold for policy adjustment.

Political Leadership Race Brings Symbolism but Limited Policy Impact

Takaichi’s alignment with Abenomics evokes a symbolic return to the aggressive stimulus policies of the 2010s, but her ability to influence central bank action appears limited. Her main challenger, Shinjiro Koizumi, remains an unknown quantity in terms of monetary policy views, further complicating market forecasts.

Still, the structural independence of the BOJ, reinforced by inflationary momentum and global economic dynamics, suggests that regardless of the leadership outcome, monetary policy decisions will remain grounded in macroeconomic data rather than political ideology.

Despite growing political noise ahead of Japan’s leadership election, the BOJ appears poised to continue its gradual tightening cycle. Economic fundamentals rising wages, persistent inflation, and steady corporate earnings are aligning to support another rate increase. While markets may temporarily shift in response to political developments, the underlying policy trajectory is likely to remain intact, shaped more by inflation expectations and global currency dynamics than by who sits in the prime minister’s seat.

Source: Reuters

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IC Markets Europe Fundamental Forecast | 18 September 2025

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Source: Reuters

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