Germany Votes for Historic Boost to Defence Spending

Political

Summary:

Germany has voted to exempt spending on defence from its strict federal debt rules German lawmakers have voted to allow a huge increase in defence and infrastructure spending - a seismic shift for the country that could reshape European defence.

A two-thirds majority of Bundestag parliamentarians, required for the change, approved the vote on Tuesday.

The law will exempt spending on defence and security from Germany's strict debt rules, and create a €500bn ($547bn; £420bn) infrastructure fund.

This vote is a historic move for traditionally debt-shy Germany, and could be hugely significant for Europe, as Russia's full-scale invasion of Ukraine grinds on, and after US President Donald Trump signalled an uncertain commitment to Nato and Europe's defence.

However, state government representatives in the upper house, the Bundesrat, still need to approve the moves - also by a two-thirds majority - before they officially become law. That vote is set for Friday.

Friedrich Merz, the man behind these plans and who is expected to soon be confirmed as Germany's new chancellor, told the lower house during Tuesday's debate that the country had "felt a false sense of security" for the past decade.

"The decision we are taking today... can be nothing less than the first major step towards a new European defence community," he said, adding that it includes countries that are "not members of the European Union".

EU Commission President Ursula von der Leyen called the vote "excellent news".

Speaking at a press conference with Danish Prime Minister Mette Frederiksen, she said the vote "sends a very clear message to Europe that Germany is determined to invest massively in defence".

Frederiksen meanwhile called it "fantastic news for all Europeans".

Germany has long been cautious about defence spending, not just for historical reasons dating back to 1945, but also due to the global debt crisis of 2009.

But despite fears the vote would be tight, lawmakers in the end voted in favour of the changes by 513 to 207 - comfortably over the two-thirds majority required.

One leading German newspaper described this vote as "A day of destiny for our nation".

Under the measure, any spending on defence that amounts to more than 1% of Germany's GDP would no longer be subject to a limit on borrowing. Until now, this debt brake has been fixed at 0.35% of GDP.

The change could transform the country's partially neglected armed forces in an era of great uncertainty for Europe.

And this vote was not just about defence. It was also about freeing up €500bn for German infrastructure - fixing things like bridges and roads, but also to pay for climate change measures, something the Green Party insisted on.

Merz, whose CDU party won Germany's general election last month, proposed the measures swiftly after the win.

In an interview on Sunday he specifically mentioned fears that the US could pull back from defending Europe and Trump's talks with Russian President Vladimir Putin, saying that the "situation has worsened in recent weeks".

"That is why we have to act fast," Merz told public broadcaster ARD.

It is a significant political win for Merz, who will, when he takes power as chancellor, now have access to hundreds of billions of euros to invest in the state - what some in Germany have called a "fiscal bazooka".

It is also an important moment for Ukraine. The defence plans approved today by the Bundestag also allow spending on aid for states "attacked in violation of international law" to be exempt from the debt brake.

That will enable outgoing Chancellor Olaf Scholz to release €3bn in aid to Ukraine as early as next week.

Merz chose to push the changes through the old parliament, knowing the vote arithmetic was more favourable now than it would be after 25 March, when the new parliament session begins.

The far-right AFD and far-left Linke, which both performed well in February's election, oppose Merz's plans.

Merz has still not agreed a coalition deal to govern Germany after his election win, and has announced ambitious plans to have a government in place by Easter.

Coalition negotiations in Germany, however, can drag on for months at a time.

Source:BBC

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Justin

Central Bank

The Fed, starting with today’s policy announcement at 2:00pm eastern, is “facing the most difficult challenge a central bank ever faces when the shock is both pushing up prices, in terms of imports, and reducing jobs, in terms of input costs. This is what tariffs do,” wrote former Treasury Sec. Larry Summers on Tuesday.

What to do when the stakes and uncertainty are high? Nothing sounds about right, at least for now. “The costs of being cautious are very, very low,” Fed Chairman Powell said earlier this month. “The economy’s fine, it doesn’t need us to do anything, really.”

Fed funds futures agree, and are pricing in a near certainty that the central bank will leave its 4.25%-to-4.50% target range unchanged today. The confidence for standing pat is moderately lower at an implied 80%-plus probability for the next FOMC meeting on May 7. A key question is whether today’s revised Fed economic projections, and Powell’s press conference, will change the calculus?

The policy-sensitive US 2-year Treasury yield has recently started pricing in higher odds for rate cuts by dropping below the median Fed funds target range–again. Earlier in the year, the 2-year was more or less trading in line with the median Fed funds rate, which suggested the market expected a steady policy. But in recent weeks the crowd revised its guesstimates and has turned dovish on the outlook.

A Fed Rate Cut May Be Near, But Not Today_1

At the core of the Fed’s current dilemma is deciding if the risk of higher inflation dominates the threat of slower economic growth. Inflation was already sticky before tariffs, and the odds have likely increased that pricing pressure will remain firm if not accelerate if a global trade war unfolds.

But trade-war risk is also a factor that could slow the economy. As reported yesterday by CapitalSpectator.com, the US first-quarter median nowcast for GDP growth has fallen recently and is currently a weak 1.2% — close to a stall-speed pace.

By some accounts, looking beyond the first quarter is ringing alarm bells. Clement Bohr, an economist at UCLA Anderson Forecast, writes that if the tariff plans are fully implemented, a recession is likely:

“As 2025 begins to unfold, there are no signs of an imminent recession… However, the stated aim of the Trump Administration is to dramatically transform the U.S. economy in its first 100 days and that begs the question: if fully or nearly fully enacted, could these initiatives cause enough sectors of the economy to contract at the same time and trigger a recession? The answer appears to be yes, that a downturn could result over the coming year or two, and that we should now be on a Recession Watch.”

The burning question is where the Fed comes down on weighing the expected risks for inflation vs. recession? Doing nothing and waiting for more clarity via incoming data may be prudent today, but this will likely be the last time in the foreseeable future that the central bank can walk a tightrope and try to redirect the market’s attention to some point in the future.

Source:James Picerno

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ING

Central Bank

Governor Ueda was quite cautious in his guidance

The BoJ statement showed that its assessment of inflation and growth hasn't changed much. However, there was much more emphasis on the uncertainties surrounding US trade policy. Governor Ueda also made several comments on tariff risks during his press conference. Ueda indicated that he would wait and see how the US tariff issues unfold, so markets may be betting more on a July hike than a May hike.

However, our attention is more on his remarks regarding recent wage negotiations, which, while expected, were still stronger than anticipated. The BoJ is closely monitoring the potential upside risks to inflation. Additionally, the recent rise in Japanese government bonds (JGBs) reflects the market's reaction to inflation and economic data developments.

Ueda believes it is not time for the BoJ to step into the bond market, which signals that he is biased on the tightening stance. By giving mixed signals, both hawkish and dovish, the BoJ is likely to retain some room for manoeuvre in future policy meetings. We believe that unless the tariff issue escalates more than what has already been revealed, the BoJ's priority should be given to inflation, consumption and wage growth.

BoJ watch

The preliminary Shunto results suggest another year of above 5% wage growth, which should support the BoJ's virtuous cycle of wage growth and sustainable inflation. The BoJ would like to see how companies pass on the input price rises to retail prices. Usually, companies raise their prices in the first month of their fiscal year, April.

Therefore, the upcoming inflation data is the key to watch. Tomorrow's CPI inflation is expected to ease to 3.5% YoY in February from 4.0% in January due to renewed government energy subsidies and a stabilisation of fresh food prices. We expect the easing to be temporary and inflation to pick up again in March and April. More important to watch should be the April Tokyo CPI data which will be released a few days before the BoJ's April/May meeting. If April Tokyo inflation reaccelerates as we expect, then the odds of a May hike should increase.

Core inflation is expected to stay above 2% for a considerable time

Bank of Japan Holds Rates With a Hike Likely in May_1

Source:ING

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Devin

Economic

Nvidia CEO Jensen Huang downplayed the negative impact from President Donald Trump's tariffs, saying there won't be any significant damage in the short run.

"We've got a lot of AI to build. AI is the foundation, the operating system of every industry going forward. ... We are enthusiastic about building in America," Huang said Wednesday in a CNBC "Squawk on the Street" interview. "Partners are working with us to bring manufacturing here. In the near-term, the impact of tariffs won't be meaningful."

Trump has launched a new trade war by imposing tariffs against Washington's three biggest trading partners, drawing immediate responses from Mexico, Canada and China. Recently, Trump said he would not change his mind about enacting sweeping "reciprocal tariffs" on other countries that put up trade barriers to U.S. goods. The White House said those tariffs are set to take effect April 2.

Shares of Nvidia have fallen more than 20% from its record high reached in January. The stock suffered a massive sell-off earlier this year due to concerns sparked by Chinese AI lab DeepSeek that companies could potentially get greater performance in AI on far lower infrastructure costs. Huang has pushed back on that theory, saying DeepSeek popularized reasoning models that will need more chips.

Nvidia, which designs and manufactures graphics processing units that are essential to the AI boom, has been restricted from doing business in China due to export controls that were increased at the end of the Biden administration.

Huang previously said the company's percentage of revenue in China has fallen by about half due to the export restrictions, adding that there are other competitive pressures in the country, including from Huawei.

Source: CNBC

To stay updated on all economic events of today, please check out our Economic calendar

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Warren Takunda

Economic

The New Zealand Dollar will drop against the Pound, Euro and other major currencies if the Federal Reserve strikes a hawkish tone later today by warning it is not ready to cut interest rates anytime soon.

However, any developments that boost expectations for U.S. interest rate cuts - for example, Fed fears of an economic slowdown - would help U.S. equity markets and extend this week's nascent recovery by the Kiwi.

"Recent economic data has signalled a slowdown in the U.S., fuelling expectations that the Fed will implement three rate cuts in 2025, starting in June or July. The key question is whether Jerome Powell will adopt a dovish tone," says Ricardo Evangelista, Senior Analyst at ActivTrades.

Doing so would reinforce growing expectations for rate cuts, explains Evangelista, which would boost U.S. equities and sentiment-linked proxies such as NZD.

"Hopes of a continued equity rebound have stalled for now, with investors stepping away from risk assets ahead of today’s Fed decision," says Boris Kovacevic, Global Macro Strategist at Convera.

However, should the Fed's focus be on Trump's tariffs and their potential inflationary impact, it might strike a more 'hawkish' tone that pushes back against rate cut bets, leading to stock market losses.

Here, we would anticipate NZD to retreat to recent lows against most G10 peers.

The New Zealand Dollar has fallen sharply against the Pound and Euro amidst a selloff in U.S. stock markets, reflecting the currency's well-established 'high beta' to global investor sentiment.

However, NZD/USD has been trending higher in March as the U.S. Dollar is struggling amongst a belief that the U.S. economic exceptionalism of 2024 is rapidly fading.

This has come about as businesses and consumers grow more cautious amidst President Donald Trump's erratic approach to tariffs, which risk raising inflation and hampering businesses. New Zealand Dollar's Budding Recovery Rests With the Fed_1

New Zealand Dollar's Budding Recovery Rests With the Fed_1

Above: NZD vs. GBP rises as the U.S. S&P 500 recovers (lower panel).

The Fed must give its verdict and try to steer markets accordingly. Given policy from the White House is so opaque, the difficulty facing the Fed is elevated.

The Fed will keep interest rates unchanged but release new economic and interest rate projections, which will sway markets.

Should Jerome Powell and his team indicate it is more concerned about the potential of an economic slowdown, then markets will increase bets for another rate cut before mid-year.

This would bolster stocks and the New Zealand Dollar.

However, should Powell focus on the inflationary risks of tariffs, the odds of such a cut would fade, stocks would falter, and NZD would be dragged lower again.

"The bar for rate cuts has crept higher, driven by concerns that inflation remains uncomfortably sticky. Selling resumed on Wall Street with the largest technology names being hit the hardest," says Kovacevic.

Source: Poundsterlinglive

To stay updated on all economic events of today, please check out our Economic calendar

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FXOpen

Commodity

Just five days ago, we noted that gold was approaching the $3,000 level and suggested that a breakout could occur this month.

Yesterday, as shown on the XAU/USD chart, the spot price of gold rose above the psychological $3,000 mark for the first time ever. The new all-time high now stands at around $3,045.

Why Is Gold Rising?

Bullish sentiment is being driven by traders positioning themselves ahead of a key event—the Federal Reserve’s interest rate decision, set to be announced today. According to ForexFactory, analysts expect rates to remain unchanged at 4.5%, but surprises cannot be ruled out.

Additionally, gold is becoming more attractive as a safe-haven asset. As reported by Reuters:

→ Tensions in the Middle East are escalating—Israel warns of further casualties, as airstrikes in Gaza have already resulted in over 400 deaths.

→ Gold is gaining amid uncertainty over US tariffs.

Technical Analysis of XAU/USD Chart

In the short term, gold’s price action has formed movements that outline an ascending channel (marked in blue), with key developments including:

→ A breakout (as shown by the arrow) above not only the psychological $3,000 level but also the upper boundary of the channel.

→ A prior consolidation zone formed between $3,000 and $2,980.

It seems the bulls were looking for confirmation and confidence before attempting to break through resistance. The fact that they succeeded suggests this resistance zone may now act as support, making a retest of $3,000 possible.

However, the future direction of gold prices will largely depend on the news backdrop. Brace for volatility—the Fed’s interest rate decision will be released today at 21:00 GMT+3, followed by a press conference by Chair Jerome Powell at 21:30 GMT+3.

Source: ACTIONFOREX

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Warren Takunda

Cryptocurrency

Bitcoin’s correction from its January peak is a typical cycle pullback and is not out of the ordinary, with a price top still on the horizon, crypto analysts and executives tell Cointelegraph.

“I don’t think the bull run is over; I think the peak of the cycle has been pushed back due to macro conditions, and global liquidity isn’t pretty, which isn’t helping crypto,” Collective Shift CEO Ben Simpson told Cointelegraph.

Bitcoin experiencing expected retracement

“It is only the third or fourth correction we’ve had over 25% we’ve had in Bitcoin this cycle compared to 12 last cycle,” Simpson said.

Bitcoin is down 24% from its all-time high of $109,000 on Jan. 20 amid uncertainty around US President Donald Trump’s tariffs and the future of US interest rates, but Simpson called it “a normal correction.”

“Things got overheated, and they needed to cool down, and the market needed to find a new foundation, and now we’re waiting for the next new narrative,” he said. Bitcoin Is Just Seeing a ‘Normal Correction,’ Cycle Peak Is Yet to Come: Analysts_1

Bitcoin Is Just Seeing a ‘Normal Correction,’ Cycle Peak Is Yet to Come: Analysts_1

Bitcoin is down 13.58% over the past month. Source: CoinMarketCap

Derive founder Nick Forster shared a similar view, telling Cointelegraph that Bitcoin “is likely in a normal correction phase, with the cycle peak still to come.”

“Historically, Bitcoin experiences these types of corrections during long-term rallies, and there’s no reason to believe this time is different,” he said.

After Trump’s election in November, Bitcoin surged almost 36% over a month, hitting $100,000 for the first time in December. At the time of publication, Bitcoin is trading at $82,824, according to CoinMarketCap.

However, Forster added that the six-month fate of Bitcoin seems increasingly tied to traditional markets. Similarly, Independent Reserve CEO Adrian Przelozny told Cointelegraph that it isn’t just Bitcoin being impacted by the macroeconomic conditions.

“This is pervading all asset classes and may lead to a spike in global inflation and a contraction in international growth,” Przelozny said. Bitcoin Is Just Seeing a ‘Normal Correction,’ Cycle Peak Is Yet to Come: Analysts_2

Bitcoin Is Just Seeing a ‘Normal Correction,’ Cycle Peak Is Yet to Come: Analysts_2

Source: Charles Edwards

Forster said Bitcoin’s current price trend aligns with past behavior before a price rally, even though it appears “tumultuous” at the moment.

Bitcoin’s current trend may “change quickly”

Collective Shift’s Simpson said the next narrative will likely revolve around US rate cuts, easing quantitative tightening, and increasing global liquidity.

However, Capriole Investments founder Charles Edwards said he isn’t so sure if the Bitcoin bull run is over or not.

The odds are “50:50, in my opinion,” Edwards told Cointelegraph.

“Yes, from an onchain perspective at present, but that could change quickly if the Fed starts easing in the second half of the year, stops balance sheet reduction, and dollar liquidity grows as a result, which I think has decent odds of happening,” Edwards explained.

The comments come a day after CryptoQuant founder and CEO Ki Young Ju declared that the “Bitcoin bull cycle is over.”

“Expecting 6-12 months of bearish or sideways price action,” Ju said.

Source: Cointelegraph

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Germany Votes for Historic Boost to Defence Spending

Source:BBC

A Fed Rate Cut May Be Near, But Not Today

Source:James Picerno

Bank of Japan Holds Rates With a Hike Likely in May

Governor Ueda was quite cautious in his guidance

BoJ watch

Core inflation is expected to stay above 2% for a considerable time

Source:ING

Nvidia Ceo Jensen Huang Says Tariff Impact Won't Be Meaningful In The Near Term

Source: CNBC

New Zealand Dollar's Budding Recovery Rests With the Fed

Above: NZD vs. GBP rises as the U.S. S&P 500 recovers (lower panel).

Source: Poundsterlinglive

Gold Price Surpasses $3,000 Per Ounce for The First Time in History

Why Is Gold Rising?

Technical Analysis of XAU/USD Chart

Source: ACTIONFOREX

Bitcoin Is Just Seeing a ‘Normal Correction,’ Cycle Peak Is Yet to Come: Analysts

Bitcoin experiencing expected retracement

Bitcoin is down 13.58% over the past month. Source: CoinMarketCap

Source: Charles Edwards

Bitcoin’s current trend may “change quickly”

Source: Cointelegraph

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