This week, the financial environment took another big turn as the U.S. 10-year Treasury yields exploded back up to 4.46%. This recent increase comes after President Trump announced global tariffs, effective April 9. Traders are positioning themselves ahead of the release of the Fed Minutes tomorrow. At the same time, the U.S. dollar is on the upswing, but fear from the rapidly escalating trade war persists in pressuring the economy.
The trade war has especially worried firms and policymakers about the direct or indirect effects on CEE’s rapidly breaking economic growth. The latest forecasts show a downward revision in growth expectations for all CEE countries for both 2025 and 2026. At first, the growth projections started at 2% and 3.8% in 2025 and 1.9% and 4.3% in 2026. Yet those numbers were just recently retuned in the wake of the pandemic economy.
Tariff Impacts on Economic Growth
Analysts predict that the final impact of these tariffs by 2026 will largely depend on whether the current rates remain stable or fluctuate. In our baseline scenario, we assume the tariffs decline to 10% by the second half of 2025. We’re looking at a bad case where the rate just stays at 20% indefinitely.
These changes will undoubtedly deepen a number of long-standing fears about the implications on the economy, especially here in the states. Recent actions, such as the margin cap for a subset of food products that was implemented in mid-March, played a part in easing inflation’s slowdown these days. On net, base effects in the services sector have been an important contributor to this trend. These elements have set the stage for unprecedented economic growth.
Currency Fluctuations and Market Reactions
During Wednesday’s European session, the EUR/USD exchange rate tested the important psychological level of 1.1000. This movement is emblematic of traders’ responses to wider economic signals and the changing tides in the world’s currency markets. Whatever the cause, the rebound of the U.S. dollar demonstrates major turning-point investor sentiment. This has investors bracing for a more hawkish pivot from the Fed as they await the September employment data.
The slowdown of inflation has played a huge role in shaping recent economic history. At the same time, expected short-term fiscal stimulus in Germany might go a long way to cushioning the blow to the bloc’s economic expansion. The balance of these factors will be key as analysts try to decipher the picture going forward.
Future Economic Projections
Looking forward, analysts have been hesitant to predict a strong economic rebound for the United States or for CEE countries. Germany’s expected sizeable fiscal stimulus should go a long way in cushioning some of the blows. As with all things these days, uncertainty is through the roof due to tariff-related jitters.
Spot gold is approaching the $3,050 level in early trading on Thursday. Investors are struggling to judge their risk/return tradeoffs in the face of this chaotic set of events. Increasing yields, currency fluctuations, and changes in trade policy are immediately impacting market dynamics. Stakeholders on all sides are watching to see how these developments play out and what they will do next.