As everyone knows, the reason why the euro has strengthened against both the USD and other crosses is that interest rates in Europe have fallen much less and more slowly than expected 2 weeks ago.

Because a support package that was never expected in Europe has emerged. In the US, a Trump administration that wants interest rates to fall rapidly but does not want to give the impression that it has fallen out with the central bank continues to govern the government with approaches that are quite out of the norm at full speed. As a result, the interest rate issue in the US has turned into a long and narrow path.

However, another side of the USD story is slowly emerging. The reason for this is that, with the blonde and her friends mentioned above, investors from all over the world no longer see American companies as the stronghold of investment as they did in previous decades – at least for a while.

Because while the extra customs duties seem to harm the profit margins of US companies, Europe – which was seen as a “finished continent” until recently – where an extremely large support package will be issued, has suddenly become the favorite of investors. Thus, a new theme has emerged, but it is based on the oldest dynamic; wherever money is, investment is there too… From this perspective, the stock markets that promise the strongest potential for 2025 seem to be Europe. In fact, when I go back to the beginning of Covid to examine the flow of money entering European EFTs, there have been more inflows in the last 2 months than the monthly inflows since then. In other words, everyone is trying to jump from one wagon to the train.

In this case, money must first leave USD and convert to Euro in order to go to European assets. Result? A stronger Euro, a weaker USD is inevitable this year.

I think parity has little place in the China story. This is entirely based on the expansionary and supportive, spending-oriented policies of the Chinese government. Moreover, when the burden on Chinese technology stocks, which were unfairly under a lot of pressure until recently, was lifted, a great potential was released there. Although the market has already gone a little, it seems like we are just at the beginning.

Most likely, the FED committee members will also lower the growth expectation, although not as much as the Atlanta Fed. Inflation expectations may be revised upwards, but I am not very sure about this. Maybe this issue can be postponed to the next 3 months. However, it is great that the PPI and CPI announced last week were low in every item.

In fact, there is an important issue that Powell and other chairmen always point out, they do not look at a single data, but at the trend of the data. If we look at the inflation trend, which I follow in 3 items; headline inflation, core inflation and personal consumption expenditures index. According to the rumors, the Fed attaches great importance to the last two. It does not matter, all three continue to fall significantly. But here is the crazy man who has created such uncertainty that even the Fed is confused about what to decide. If he says the data trend is down and then lowers interest rates, then inflation increases due to customs duties, it would be a shame. If he does not lower interest rates due to uncertainty but the trend continues down, this time it will be a late central bank again. And to top it all off, the fight with Trump and his team… It is difficult, my friend, it is difficult! Story aside; I am convinced that interest rates will fall in the big picture. But until the train reaches that stop, it will pass through many bridges and tunnels and the road will not be easy.

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