Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Apple’s key contractor is moving ahead with a $1.5bn component plant near Chennai, further expanding the iPhone-maker’s supply chain in India even as Donald Trump demands it return manufacturing to the US.Foxconn, which has assembled Apple’s devices for years, is set to build a display module facility in the southern Indian state of Tamil Nadu, two government officials told the Financial Times. The plant would help the Taiwanese company supply Apple, its main customer.The move represents the US tech giant’s latest tilt towards India and away from China — which remains its biggest manufacturing base by far. The shift had already started before the Covid-19 pandemic, which then frayed industrial supply chains and prompted the US iPhone maker to diversify to other countries. However, the pivot has become politically contentious since the re-election of Trump, who has tangled with China over tariffs and is trying to push Apple to reshore manufacturing to America.“We are treating you really good, we put up with all the plants you built in China for years,” the US president said last week, lashing out at the Cupertino-based giant and its chief executive Tim Cook. “We are not interested in you building in India.”Foxconn on Monday announced a $1.5bn investment in its Indian unit Yuzhan Technology India, via a London Stock Exchange filing. Tamil Nadu’s state government in October approved a Rs131.8bn ($1.54bn) investment by Yuzhan in a display module assembly unit in the ESR Oragadam Industrial & Logistics Park, a short drive from Foxconn’s existing plant making iPhones near Chennai. India Business BriefingThe Indian professional’s must-read on business and policy in the world’s fastest-growing big economy. Sign up for the newsletter here Officials, who asked not to be identified by name because of the political and commercial sensitivity of Apple’s manufacturing shift to India, said the $1.5bn was earmarked for this plant, adding that it would be supplying Apple. The display module in an iPhone sits under the glass screen and provides all of the screen features including the touch interface, brightness and colour.Foxconn and Apple did not immediately respond to requests for comment. The Financial Times has previously reported that Apple intended to source from India all of the 60mn iPhones sold annually in the US by the end of next year. The display unit investment near Chennai would be one of the largest yet in India’s electronics industry, which has expanded and become a major exporter, with the help of billions of dollars’ worth of production-linked incentives from Narendra Modi’s government. Officials in Tamil Nadu previously said the new display unit plant would create about 14,000 jobs. India contributed 18 per cent of global iPhone production in 2024, a share that should go to 32 per cent in 2025, according to Hong Kong-based Counterpoint Research.India has also become the world’s second-largest smartphone market after China, measured by volume. The production increase by Apple’s suppliers Foxconn and Tata Electronics in southern India has been the biggest success of Modi’s “Make in India” drive to create more manufacturing jobs in the world’s most populous country. More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldG7 finance ministers vowed to crank up sanctions on Russia if it does not make progress towards peace with Ukraine, in a show of support for Kyiv after the US signalled it may pull back from trying to resolve the conflict.In a communiqué released after a three-day summit in the Canadian town of Banff, G7 finance ministers and central bank governors pledged their “unwavering support” for Ukraine and vowed to explore all options “to maximise pressure” on Moscow if a ceasefire is not reached quickly. However, in the wake of US President Donald Trump’s aggressive tariffs, the summit yielded little progress on ways to end his trade war.The G7 meeting was held against a backdrop of international tensions over Trump’s tariffs and growing fears that Washington could walk away from supporting Kyiv amid the ongoing war with Russia.G7 finance ministers used the communiqué to set out commitments to keep certain Russian assets frozen, and support private sector investment in Ukraine.They said if a ceasefire was not agreed between Russia and Ukraine, “we will continue to explore all possible options, including options to maximise pressure such as further ramping up sanctions”.Canadian finance minister François-Philippe Champagne said the summit ‘demonstrates our shared resolve to work together at this crucial point in history’ More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is a maritime intelligence analystOne of the many barriers to successful trade talks between Washington and Beijing is China’s reliance on Iran and Russia for its oil, and the dangerous, unregulated and illicit fleet of tankers that sail into its ports to deliver it. Chinese refineries source about one-third of imported crude from Russia and Iran, undermining US President Donald Trump’s “maximum pressure” campaign against Iran and defying G7 sanctions against Moscow.The size and scope of illicit shipping practices used by most of the roughly 700 ageing, anonymously owned tankers, and the escalating threat they pose to world maritime safety and the environment, should not be underestimated. This fleet has tripled in size since Russia’s full-scale invasion of Ukraine in 2022 and now accounts for as much as 18 per cent of all tankers trading internationally.If Trump intends to make good on his threat to punish those buying Iranian oil, he must confront Chinese oil companies, traders and port authorities that fail to inspect, detain or prosecute tankers violating international laws or conventions.Adding to the problem, sanctions have no real bite. More than half of all tankers shipping Iranian petrochemicals are now under sanctions by western countries. Well-entrenched workarounds have evolved over the past few years to avoid exposure to the US financial system, while shipowners, traders and charterers use regulatory arbitrage and operational subterfuge to move Iranian cargoes.The UK is lobbying governments of countries such as Barbados, the Cook Islands, Gabon and Panama — all of which have opportunistically marketed their flag registry services — to de-flag sanctioned tankers, revoking permission for the vessel to fly their flag. But as some of these nations start to take action, more ships are vanishing beyond oversight as owners turn to fraudulent flag registries instead. They use these to flag ships on behalf of countries — such as Guyana, Curacao, St Maarten and Eswatini — when they don’t have any permission to do so. Worse still, some continue to sail without authority under their former flag.Since early March, the percentage of Iran-trading tankers and gas carriers using fraudulent flag registries has increased to nearly 40 per cent, from 30 per cent almost two months earlier. This leaves hundreds of ships flagless and invalidates marine insurance and certificates of safety and seaworthiness. Nevertheless, the rogue vessels sail on.Countries seeking trade deals with the US may hold a bargaining chip of which they are not aware. By confronting the threat posed by unflagged tankers, they can simultaneously appease a mercurial, tariff-driven Trump administration, reduce seaborne flows of Russia and Iranian oil and make oceans safer.For instance, there are dozens of falsely flagged tankers anchored in international waters off the Riau archipelago, unscrutinised by Indonesia, Singapore and Malaysia. There, they transfer or receive sanctioned oil cargoes. Other tankers anchor unchallenged in Emirati waters. In European waters, a Russian fighter jet briefly entered Nato airspace on May 13 to defend a flagless Russia-bound tanker that Estonia’s navy unsuccessfully attempted to inspect. Many captains sail through the Danish Strait and English Channel laden with Russian oil while ignoring radio demands from coast guards.The UN Convention on the Law of the Sea has shown that it is not sufficient to deal with such circumstances. And the UN’s International Maritime Organization failed in March to agree how best to tackle the spiralling use of fraudulent flag registries and unflagged ships. Diplomats were split along geopolitical lines: those supporting western sanctions on Russia and Iran, and those opposed. Irrespective of breaking sanctions, these elderly, flagless ships and others using substandard flag registries are an oil-spill accident waiting to happen.  More

This article is an on-site version of Free Lunch newsletter. Premium subscribers can sign up here to get the newsletter delivered every Thursday and Sunday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersThere was a time, not so long ago, when Italy and Germany were typically seen as opposite poles of the economic debate in the Eurozone. But today there is a remarkable convergence — at least when we consider the leading economic lights of those countries. Specifically, I mean Mario Draghi, former Italian prime minister and European Central Bank president, and the German Council of Economic Experts, an official but independent advisory body. Both are as close to guardians of the European economic orthodoxy as you can get. Both have also recently issued statements that illustrate how much the orthodoxy has moved.That is welcome news, and the topic of this week’s Free Lunch. Do you agree? Or beg to differ? Either way, write to us at [email protected] are the three most important things these luminaries’ statements tell us about the new European consensus: 1. Wage repression ‘competitiveness’ is dead (and good riddance)The term “competitiveness” may never disappear from the European economic policy vocabulary, even though it should. But, thankfully, hardly anybody uses it the way they did as recently as 10 to 15 years ago, when it became the slogan for policies designed to lower wages (remember the obsession with “unit labour costs”?). When policymakers mention competitiveness today, they are likely to mean investment, energy costs and incentives for innovation. And it matters that this shift has been powered by such influential players as Draghi and the GCEE. Draghi last week gave a punchy speech in Coimbra, while the GCEE this week issued its spring report, the first since the incoming German leadership reformed borrowing rules to launch a big fiscal stimulus. In both texts, the once-dominant focus on wage competitiveness is nowhere to be seen.“Super Mario” chooses his interventions carefully but has become all the more forceful when he does decide to speak publicly. This time, he doubled down on the “Draghi plus” message that listeners took away from the speech he gave in Paris last December (which I wrote about here).He does not mince words about the scale of the challenge the EU economy faces:. . . recent events are a break point. The vast use of unilateral actions to settle trade grievances, and the definitive disenfranchisement of the [World Trade Organization], have undermined the multilateral order in a way that is hardly reversible . . . perceptions among industry, workers, politicians and markets have changed from complacency to alarm. The material risks we face to our growth, our social values and our identity, hang over all our decisions. We are seeing major institutional ruptures. The political shock from the US is massive.Draghi asks “why we ended up being in the hands of US consumers to drive our growth”. His answer is a biting indictment of the policies adopted to address the Eurozone sovereign debt crisis (for which, it should be said, he bears some responsibility as part of the European policymaking establishment at the time), and, in particular, cutting domestic demand and focusing on wage reductions rather than productivity. The GCEE, too, while focusing more narrowly on Germany, laments stagnant economic dynamics and warns against the trade shock coming from the US. What is absent from the experts’ list of recommendations is as important as what they include: the silence on wage competitiveness speaks volumes.2. Investment, investment, investmentWith competitiveness dethroned, investment is now king, and the foundation of the new policy advice trumpeted by both Draghi and the German experts. The GCEE hits straight at the weak point of German Chancellor Friedrich Merz’s new fiscal stimulus package. That package will ostensibly channel new borrowing, exempt from the constitutional debt brake, into defence spending above 1 per cent of GDP and a €500bn fund for infrastructure spending. But in the wonkier eddies of the German economic debate, there are worries that the extra borrowing may simply fill in spending that was already committed in the regular budget, thus freeing up funds for social spending and government consumption.The GCEE fears this, too, and is crystal clear that if this happens, the fiscal package will not deliver its productivity and growth-enhancing potential (and may also as a result hit up against European budget rules). It calls for stricter mechanisms to ensure that the extra borrowing is used for extra investment. For Draghi, the need for investment is an argument for common European borrowing and capital markets, to attract the EU’s huge capital exports back into its own economy. It is an argument, too, for breaking down remaining barriers between EU countries so as to generate a positive supply shock that would raise productivity and wages in response to increased domestic demand. And what this implies is a process of thoroughgoing structural change.3. Incumbent-friendly corporatism has run out of roadEuropean governments have traditionally been protective of their incumbent industry, and one view of the EU’s history is that it was set up as a largely corporatist bloc (though it has by now been fiercely pro-competition for decades, and more so than the US). The classic example of this is, of course, the German car industry, which together with other German manufacturing has both great political weight and accounts for a disproportionate share of investment.What Draghi’s speeches — and, of course, his influential report from last year — entail, however, is that holding on to past glories will only make Europe’s economic problems worse. Investment boosts, deepening the single market and redirecting demand — all of these are elements of a strategy that will make the world less comfortable for Europe’s established industrial giants precisely by making it more promising for new, innovative activity. Draghi is lucid about this, calling out the vested interests that are resisting change.It’s gratifying, then, that the GCEE looks this challenge in the eye, and says “bring it on”. Or in its own words:Industrial, labour market, regional and structural policies can help reduce the adjustment costs of structural change and improve long-term growth prospects, provided they avoid preserving outdated economic structures [my emphasis] . . . Instead of using costly and inefficient subsidies to preserve jobs that are no longer competitive, structural change should be accompanied by targeted labour market policies focused on training, upskilling, and retraining. This may ensure that workers are efficiently reallocated to sectors with better long-term prospects. There is much more in both analyses than the few elements I have highlighted here. But the overarching point is that the Copernican revolution in the EU’s economic thinking has largely taken place. That is not sufficient for the required policies to take place — though it is necessary. We also need politicians to fully absorb the new lessons, and act accordingly to break down opposition to change from vested interests. That is a political task, and the ball is in political leaders’ court.Other readablesRecommended newsletters for youChris Giles on Central Banks — Your essential guide to money, interest rates, inflation and what central banks are thinking. Sign up hereTrade Secrets — A must-read on the changing face of international trade and globalisation. Sign up here More

This article is an on-site version of our FirstFT newsletter. Subscribers can sign up to our Asia, Europe/Africa or Americas edition to get the newsletter delivered every weekday morning. Explore all of our newsletters hereGood morning. Today I’ll be covering:The fatal shooting of two Israeli embassy staffDonald Trump’s ‘big, beautiful’ tax billThe EU’s trade sweetener to the USAnd Starlink’s market dominanceTwo Israeli embassy aides were fatally shot in Washington last night by a man who chanted “free, free Palestine”, in an attack condemned widely as an act of antisemitism.The details: The victims were named as Sarah Lynn Milgrim and Yaron Lischinsky, who Israel’s ambassador to the US said were a couple about to be engaged. They were killed at about 9pm while leaving an event hosted by the American Jewish Committee less than 1km from the US Capitol. The Metropolitan Police Department said a suspect had been remanded in custody.Why it matters: The shooting spotlights the rise in antisemitism across the US since Hamas’s murderous October 7 attack on Israel. The subsequent Israeli offensive in Gaza has killed 53,500 Palestinians according to local officials, and has generated growing disquiet among allies of the country about its conduct in the enclave.Here’s what else we’re keeping tabs on today:Join us for a subscriber-only webinar next Wednesday for insights into the most consequential geopolitical rivalry of our time: the US-China showdown. Register now and put questions to our panel.Five more top stories1. Donald Trump has moved closer to passing a sweeping budget bill that would extend tax cuts and increase the US federal debt. US government bonds and stocks fell after a weak Treasury auction brought investor unease over the country’s fiscal deficit into sharp focus.Explainer: Here’s what Trump’s “big, beautiful” bill means for the US economy and the president’s political agenda.US market: Investors are asking “what next” as the fever over American exceptionalism breaks, writes Katie Martin. 2. Trump attacked South Africa’s President Cyril Ramaphosa over his country’s alleged mistreatment of white farmers at a televised White House meeting yesterday. The president at one point took the unprecedented step of projecting videos on to screens on the wall of the Oval Office purporting to show their persecution. Here are more details from the meeting.3. Telegram leapt to a $540mn profit last year, as the messaging app achieved rapid growth despite the ongoing French legal proceedings against its founder Pavel Durov. The Dubai-based group told investors it went from a $173mn loss in 2023 to its first annual profit, according to a company presentation seen by the Financial Times. 4. The EU is offering to extend tariff-free access for American lobsters to entice Trump into a broader trade deal. A 2020 agreement to eliminate levies on the shellfish expires on July 31, but the bloc’s officials say it could be extended as part of a package to remove the US president’s recent tariffs. Andy Bounds has more details from Brussels.5. The Pentagon has formally accepted the $400mn jumbo jet gifted to the US president by Qatar, despite Democrats’ concerns about national security and bribery. Trump intends for the plane to be used as Air Force One.The Big ReadElon Musk’s SpaceX has moved quickly to solidify its lead in the satellite business, but Amazon’s global retail network could help Jeff Bezos’s Project Kuiper become competitive More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.This article is an on-site version of our Unhedged newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersGood morning. Target reported weak first-quarter results yesterday and guided towards a decline in sales this year, sending shares down more than 5 per cent. The company also said it would raise some prices to offset tariffs, echoing Walmart’s comments last week. Retail earnings haven’t been negative across the board, but remember: the tariff headwinds have hardly started to blow. Email us: [email protected] frownAll US federal budgets are important. But this year’s, currently working its way through Congress, is particularly so. In most cases, a budget that includes a positive “fiscal impulse” — more borrowing, more spending, a wider deficit — pushes cash into the financial system. That money eventually shows up as higher corporate profits, which supports higher equity prices, which can, in turn, attract foreign capital into the US and lift the dollar. US Treasury yields might rise, too, but less from fears over deficit sustainability than higher inflation expectations. This time, however, sustainability fears seem to be gaining real traction. That means that widening the deficit may not be good for equities or the dollar, and Treasuries might suffer more than usual. It is traditional to talk about the US currency in terms of the “dollar smile”. This is the notion that the dollar tends to strengthen both when the US economy is doing better than the rest of the world (for obvious reasons) and when the US economy is doing unusually badly (because if the US is wobbling, the rest of the world is probably worse, so the dollar benefits from a flight-to-safety trade). Only in the middle, when the US economy is fine and the rest of the world is thriving, does the dollar weaken. That framework may no longer apply, however. In a recent note, George Saravelos, Deutsche Bank’s head of FX research, called this the “dollar fiscal frown”:At one extreme on the left is a fiscal stance that is too easy. This leads to a combined drop in US bonds and the dollar . . . The persistence of this pattern would be a clear signal the market is losing its appetite to fund America’s deficits and rising financial stability risks. At the other extreme, on the right of the frown is a fiscal stance that tightens too quickly, closing the deficit sharply but forcing the US into a recession and a deep Fed easing cycle. In this more conventional world, the dollar drops and bond yields rally.While equities have recovered since “liberation day”, the dollar index is still down around 4 per cent — despite bond yields that are considerably higher, which would normally support the dollar. This suggests that, at the margin, international investors may be shifting away from US assets — the left-hand side of Deutsche’s frown. There are concerning signs elsewhere, too: 30-year bond yields are rising fast, other currencies are appreciating, and, just yesterday, a Treasury auction suffered weak demand. Under current conditions, it is possible that the market will recoil at a positive fiscal impulse it might have once found acceptable, sending bonds, equities and the dollar down together. Yikes.The notion that a weakening fiscal impulse would harm the dollar — the right-hand side of the frown — makes sense in this environment, too. As Marko Papic at BCA Research says, US investors have become “addicted to fiscal [excesses]”. A fiscal impulse too small to keep equity prices and valuations at historical highs might push foreign investors away from dollar assets. Outflows could increase the probability of a slowdown or recession, forcing the Fed to cut rates — another drag on the dollar. This seems all the more likely now that spending is picking up in Europe, particularly in Germany. A stronger fiscal impulse abroad gives investors fewer reasons to pile into Treasuries.So we find Deutsche’s framework sensible, but only to a degree. Yes, the bond market is sending Congress some appropriately negative feedback (and we pray the message gets through). But we suspect that the underlying global appetite for Treasuries and US equities remains healthy. As Ben Shoesmith, senior economist at KPMG, has noted to Unhedged, though yields have risen, they’re sitting at the same levels as before the great financial crisis. In other words, what we’re seeing now might be normalisation rather than revolution (chart courtesy of Shoesmith):It would also be a mistake to assume that a slowdown is inevitable this year. We still don’t know where Donald Trump’s tariffs will wind up and what their impacts on growth will be. If anything, the economy is looking a bit too hot right now. It is difficult to read the fiscal tea leaves, too. At first glance, the fiscal impulse looks to be positive, but less positive than previous budgets. Yet, the timing is tricky; a budget plays out unevenly over a decade. According to Freya Beamish, chief economist at TS Lombard, the proposed tax cuts are expected to hit sooner, while the spending cuts will hit later on. In the near term, that suggests much more liquidity in markets and the economy. Looking at this landscape, it feels like there are few good scenarios for Congress or the market. The budget has to be stimulative enough to sustain growth — but not so stimulative that it sends Treasury yields soaring. Were Treasury yields to rise by another hundred basis points or more, that would make servicing the debt meaningfully more expensive and could force the government towards an austerity budget. That would wreck growth and bring down interest rates, and with them the dollar.Of course, this could get so bad that it spills over into a full-blown global meltdown. If that happens, foreign investors will probably flock back to the US and the dollar. But that would be a very painful way to support American exceptionalism.One good readBoredom is good.FT Unhedged podcastCan’t get enough of Unhedged? Listen to our new podcast, for a 15-minute dive into the latest markets news and financial headlines, twice a week. Catch up on past editions of the newsletter here.Recommended newsletters for youDue Diligence — Top stories from the world of corporate finance. Sign up hereThe Lex Newsletter — Lex, our investment column, breaks down the week’s key themes, with analysis by award-winning writers. Sign up here More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldBrussels has dangled some fresh bait to hook a trade deal with Donald Trump: American lobsters.During the US president’s first term, the bloc agreed in 2020 to eliminate tariffs on the shellfish, as Trump sought to claw back support for his re-election bid in the fishing state of Maine.But the deal expires on July 31, just after the scheduled end of a truce in the two sides’ current trade war.The European Commission is open to extending the lobster deal as part of a package to remove tariffs imposed by Trump since his return to power in January, two officials told the Financial Times. The commission declined to comment.Talks began in earnest last week after the two sides exchanged negotiating documents for the first time, outlining areas of discussion ranging from the EU trade surplus in goods to investment opportunities and regulations that the US believes are barriers to trade.Trump imposed 20 per cent tariffs on almost all EU imports on April 2 as part of his global “reciprocal” tariff plan, but he then halved the rate until July 8 to allow for negotiations.At the same time, the US leader has maintained additional 25 per cent tariffs on steel, aluminium and cars and has threatened more levies on pharmaceuticals, semiconductors, copper, lumber, critical minerals and aerospace parts.The EU has said it is willing to reduce the goods trade deficit with Washington by buying more US gas, weapons and agricultural products. It has also readied its own retaliatory tariffs. The 2020 deal, which scrapped EU tariffs of 8 per cent on lobster imports from all countries, came after Trump complained that an EU trade deal with Canada had hit American exports. Canadian lobsters were not subject to any tariffs under that deal.As part of the same agreement with the US, commission president Jean-Claude Juncker and trade commissioner Phil Hogan persuaded Trump to halve tariffs he had imposed on EU exports worth about $160mn annually. They included some prepared meals, crystal glassware, cigarette lighters and lighter parts.US lobster exports to the EU were worth $111mn (€93mn) in 2017 but by 2020 had fallen to €22.3mn, just 11 per cent of the EU market, according to the EU’s statistics agency Eurostat. By 2024, they had increased to €69.2mn, a quarter of the market.Bernd Lange, chair of the European parliament’s trade committee, said the lobster trade was “not so economically important” but led to de-escalation from Trump. “[The deal] is expiring at the end of July. I’m really in favour of extending it,” he said.“We have to be really creative in looking also at what in the mind of our American counterparts could be recognised as unfair.”He suggested the EU could also examine its standards on food and animal health imports as part of any deal.“In general, of course, our food safety standards and animal health standards cannot be touched,” Lange said, but “we have to look at [each] restriction to see if they are really based on scientific evidence”. However, the German Social Democratic party MEP said the EU would not change environmental regulations or taxes under US pressure. More

Bets that currency deals will form part of trade negotiations with the US have helped lift a string of Asian currencies against the dollar, as traders look for signs that countries will offer to scale back intervention to appease President Donald Trump.The Korean won, Japanese yen and Taiwan dollar have rallied strongly in recent weeks, making them Asia’s top-performing currencies this year, in the expectation that talks on lowering sweeping US trade tariffs will touch on how countries manage their dollar exchange rates. “It is quite likely that the market believes that the US will look to introduce some language around exchange rates, as part of broader trade agreements with some trading partners,” said Nathan Venkat Swami, head of Asia-Pacific FX trading at Citigroup. Some content could not load. Check your internet connection or browser settings.“Exchange rates will be part of negotiations,” said one investor at a large Chinese fund. “The market will front-run before the negotiations play out.” The large US dollar reserves of wealthy Asian exporting nations such as Taiwan, Korea and Japan have fed the speculation. “There’s a bit of a coiled spring” in Asian currencies, said Timothy Moe, co-head of Asia macro research at Goldman Sachs. “The conditions are at hand for a currency appreciation.” Many traders and analysts believe a so-called Mar-a-Lago Accord — a grand multilateral currency deal in the style of the 1985 Plaza Accord, when Washington negotiated a depreciation of the dollar with Japan, the UK, France and West Germany — is unlikely. Instead, they say the market is moving in the expectation that a series of smaller, bilateral currency deals could be simpler to strike. It will “probably be easier to get to bilateral agreements than a single multilateral one”, said Meera Chandan, JPMorgan’s co-head of FX strategy.Last week, the won surged as much as 2.2 per cent against the dollar on reports, later confirmed by South Korea, that it had discussed exchange rates with the US in early May. The move in the won followed a historic surge in the Taiwan dollar earlier in the month, partly fuelled by speculation that US trade talks would drive the currency higher. The surprise lack of intervention by the Taiwan’s central bank was seen by the market as a sign of a shift in policy towards allowing the currency to appreciate. The recent jump in the Taiwan dollar was a signal from the central bank to the market “that a regime change is coming”, said one portfolio manager in Hong Kong.Taiwan’s central bank said at the time that the US Treasury department had not asked for currency appreciation as part of negotiations.Nevertheless, a growing number of analysts think the US could make limited currency intervention a condition of trade deals. “At this stage, I’d expect any FX deal to be along the lines of commitment to freely floating exchange rates and limiting FX intervention, particularly intervention to sell the local currency,” said ING’s global head of markets research Chris Turner. Foreign exchange traders from the region are adjusting positions on expectations that appreciation of local currencies is a long-term trend.“I think the appreciation will not be a vertical line like what happened earlier in May,” said one treasurer at a large Taiwanese life insurer who works in FX. “But we do agree that the appreciation move is a trend.” On Wednesday, when asked by lawmakers about the sharp appreciation, Taiwan’s central bank deputy governor Yen Tzung-ta said managing exchange rate volatility was the prime concern.Traders in the region see the shape of any trade deal that Japan strikes with the US as key to determining what happens to other currencies in the region,” said a portfolio manager in Hong Kong. “This will have a “knock-on effect on other Asian currencies.”According to investors and analysts, the yen and renminbi anchor regional exchange rates. Japan’s trade negotiations with the US have been delayed as Prime Minister Shigeru Ishiba’s deeply unpopular administration holds out for a complete exemption from tariffs in an attempt to win over voters ahead of elections in July. As most analysts predicted, a meeting between US Treasury secretary Scott Bessent and Japanese finance minister Katsunobu Kato on the sidelines of the G7 finance meeting in Canada on Wednesday resulted in no formal agreement on currency actions. However, there was an unusually clear affirmation in a statement from the US Treasury that exchange rates should be determined by the market and that the current dollar-yen rate reflected fundamentals.At a press conference, Kato said neither exchange rate levels nor Japan’s massive holdings of US Treasuries were discussed.Ahead of the meeting, analysts in Tokyo speculated that conditions were in place for what Nomura’s chief FX strategist Yujiro Goto called a “hidden deal”.Despite being the first country to open formal tariff negotiations with Trump, Japan’s efforts to reduce a 25 per cent levy on automobiles have yet to produce a result. But the US may now agree to a lowering to 10 per cent, said Goto, on the tacit understanding that Tokyo will not stand in the way of the yen rising between 3 and 5 per cent against the US dollar. The yen would rise naturally, said Goto, if the Bank of Japan stuck to its efforts to raise interest rates, and if the Japanese government held off any verbal intervention whenever the yen rose sharply.As for the renminbi, Goldman Sachs now forecasts it will appreciate to Rmb7 to the dollar over the next 12 months, from Rmb7.20 currently. “The situation is favourable for the market to allow a gradual appreciation of the renminbi,” said Goldman’s Moe. “That could open the door for other currencies like the yen, won and Taiwan dollar to appreciate further.” Additional reporting by Haohsiang Ko in Hong Kong More