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Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldThe pound has rebounded strongly against the dollar and the euro in recent weeks, as a reversal of so-called Trump trades hits the US currency and investors bet that the UK economy may be faring better than previously feared. Sterling has climbed 1.7 per cent against the dollar in February, its best month since September. It was flat on Friday, having risen from below $1.21 last month to as high as $1.2715 this week. While inflation remains above target, better than expected retail sales and GDP data have provided a lift for investors worried about the UK’s anaemic growth.“People were worried about stagflation but the growth side of that narrative doesn’t seem to be borne out by the recent data . . . there seems to be some feel-good forces at play,” said Kamal Sharma, an FX strategist at Bank of America. The pound has also strengthened 1.3 per cent against the euro so far this month, and many analysts also believe the pound is better placed than other G10 currencies to ride the fallout from sweeping US trade tariffs, given the eurozone’s greater reliance on exports such as cars, which have been targeted by the new president.That view was further bolstered on Thursday, when US President Donald Trump said he is working on a trade deal with the UK and suggested that Britain could escape tariffs if the countries secure one.“We could very well end up with a real trade deal where the tariffs wouldn’t be necessary. We’ll see,” Trump said at a joint press conference with his UK counterpart Sir Keir Starmer at the White House. The pound’s rally has also been driven by “cooling Trump trades” — the unwinding of bets that Trump’s election victory would fuel inflation and push up the dollar and other assets — and “surprisingly positive” UK economic data, said Brad Bechtel, global head of FX at Jefferies.UK inflation rose to a 10-month high of 3 per cent in January, raising the prospect of slower interest rate cuts from the Bank of England, which has helped support sterling. Foreign purchases of gilts, which are yielding more than US Treasuries, were providing a further tailwind for the pound, analysts said. Last year, foreign purchases rose to roughly £102bn, the highest level ever, according to BoE data. Sterling had been lifted by the “hotter” inflation data and a perception that the UK had lower exposure to the US tariff threats, said Francesco Pesole, an FX strategist at ING. But he added that “a calm gilt market remains necessary” for the strengthening to continue, alluding to recent sell-offs in UK government bonds that have also weighed on the currency.Meanwhile, other economists warned it was too early to call a significant improvement of the flagging UK economy. Public finances swung to a smaller than expected surplus in January.“Things are a bit better on the back of very, very weak expectations,” said Hetal Mehta, head of economic research at St James’s Place. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.UK inflation risks have increased because of stronger than expected pay growth, a senior Bank of England rate-setter said, as he emphasised the need to proceed with “gradual” monetary policy easing. Dave Ramsden, a deputy governor at the BoE and one of the more dovish members of its rates committee, said he now saw more “two-sided” risks to the inflation outlook, adding that he had become less certain about the outlook for the UK’s labour market. Pay growth has overshot BoE expectations and the central bank predicts consumer price inflation will accelerate to 3.7 per cent later this year, complicating its plans for lower interest rates. The BoE trimmed rates by a quarter-point in February while predicting a combination of sluggish growth and a pick-up in inflation. Ramsden dissented from the majority of the Monetary Policy Committee at its December meeting, when rates were held, by advocating a quarter-point rate reduction. At the latest meeting he voted with the majority for rates to be lowered to 4.5 per cent. “Compared with my position throughout last year I am now less certain than I was about the outlook for the UK labour market, and its implications for future inflation persistence and growth,” Ramsden said in a speech in South Africa on Friday. “Because of the evidence of recent months I no longer think that risks to hitting the 2 per cent inflation target sustainably in the medium term are to the downside. Instead, I think they are two-sided, reflecting the potential for more inflationary as well as disinflationary scenarios.”Ramsden said he had seen some “concerning developments” in short-term indicators, particularly on wages. Fourth-quarter annual growth in private sector earnings rose to 6.2 per cent from 4.9 per cent in the three months to December. Ramsden said pay growth should stay at that level in the current quarter, a full 2 percentage points higher than expected a year ago. At the same time, however, with falling vacancies and slowing job growth, Ramsden said labour demand could continue to ease “much more materially in the near future”.He added that his central view was that the disinflationary process remained intact. “Given the increased uncertainty and risks to inflation on both sides — from the near-term outlook to inflation, and from developments in the global economy — I am even more certain than I was that taking a gradual and careful approach to the withdrawal of monetary restraint is appropriate,” said Ramsden. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldDonald Trump said on Thursday he would impose an additional 10 per cent tariff on imports from China and press ahead with levies on Mexico and Canada from next week, raising the spectre of a global trade war.The president had halted his proposed tariffs on Mexico and Canada earlier this month, just hours before they were due to begin, giving the US’s two biggest trading partners a month-long reprieve.But in a post on Truth Social on Thursday, Trump wrote: “The proposed TARIFFS scheduled to go into effect on MARCH FOURTH will, indeed, go into effect, as scheduled.”The president added that he also planned to hit China with an additional 10 per cent levy on March 4, on top of 10 per cent tariffs that he imposed this month. Trump said that his plan for sweeping “reciprocal” tariffs, unveiled this month and affecting countries and products around the world, would go ahead as planned on April 2.Following Trump’s latest threat, China’s offshore renminbi weakened 0.3 per cent to Rmb7.289 versus the dollar. The dollar climbed 0.6 per cent higher against a basket of other major currencies.Trump’s remarks are the latest salvo in the aggressive trade policy his administration has pursued since re-entering the White House in January. They increase the danger of a wider trade war that risks inflicting significant damage on the global economy.The Chinese embassy in Washington criticised the new tariffs, saying there were “no winners” in a trade war.“The unilateral tariffs imposed by the US will not solve its own problems, nor will it benefit the two sides or the world,” said Liu Pengyu, spokesperson for the Chinese embassy in the US. “China calls on the US to correct its wrongdoings.”Later on Friday, China’s commerce ministry said the country would “take all necessary countermeasures to defend its legitimate rights and interests”.China’s ministry of public security also released its annual security report, in which it said it had tightened controls on “new drugs and fentanyl-like substances” and imposed export controls on 24 additional precursor chemicals to “specific countries”.The new tariff on China marks an escalation from the 10 per cent levy Trump announced last month, which was intended to pressure Beijing to crack down on groups that export chemicals used to make fentanyl, an opioid that has been a leading cause of death in the US.Trump’s comments on Thursday marked an apparent reversal from remarks he made on Wednesday, when he said that the levies on Canada and Mexico would take effect on April 2, suggesting a possible delay. His latest push for tariffs to take effect on March 4 — the day he is scheduled to address a joint session of Congress — is likely to trigger a diplomatic rush to try to stop the measures over the next few days.Canadian Prime Minister Justin Trudeau said his country would respond to any “unjustified tariffs” with a “strong, immediate and certain answer”. He added that Canada would in response immediately impose levies on $30bn worth of goods imported from the US. A high-level delegation of Mexican officials will visit Washington on Thursday to meet US secretary of state Marco Rubio to discuss security co-operation. Over the past month, Beijing has been trying to ascertain whether Trump wants to negotiate a narrow trade deal or a more comprehensive agreement.Chinese officials and government advisers have informally signalled that Beijing would be willing to purchase more US products to cut the trade deficit between the two countries. They have also said Chinese companies could invest in the US to create as many as 500,000 jobs, according to people familiar with the matter. But the two sides have not held any substantial talks on trade. The announcement of the additional tariffs on China came the day after the Senate confirmed Jamieson Greer to serve as the US trade representative. The Chinese embassy in the US has been contacted for comment.Additional reporting by Christine Murray in Mexico City and Joe Leahy in Beijing More

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. President Donald Trump revved up the tariff rhetoric again yesterday, promising that his 25 per cent tariffs on imports from Mexico and Canada would go into effect next Tuesday, and that another 10 per cent would be added to existing China tariffs. All this on top of Wednesday’s promise of 25 per cent tariffs on Europe “very soon”. The market has again been left to wonder if the president was bluffing again. European stocks fell a per cent or so, with carmakers down a couple of points more. The key currencies moved, too, but not much. They remain in their 2025 trading range:Does Trump mean it this time? Let us know what you think: [email protected] and [email protected]. The economic outlookEarlier this week we presented an economic prediction matrix for year-end 2025, with employment and inflation as the variables. It looked like this:What is the probability distribution across the boxes? As a reminder, we don’t think that the predictions rendered by this sort of exercise are particularly useful. Economic forecasting, to any useful degree of precision, is near impossible. The process of predicting, however, is very useful. Attempts at prescience force clarity about the present. Readers were very evenly split. On average, most thought that B — too hot — was the most likely outcome, but gave it a probability of only 1 in 3, with “stagflation” close behind.The arguments for each the four outcomes, as we see them, are as follows: A: Just rightThe hard economic data is strong. Yesterday we got an upward revision to Q4 GDP. Manufacturing has started to expand after years of contraction. Unemployment is low, and jobless claims barely moved last week. Monetary policy is restrictive and inflation will come down. Inflation is still elevated, and the last few reports have not been encouraging. But a similar thing happened early last year, before disinflation reasserted itself. This stuff takes time. Trump is bluffing about tariffs and mass deportations. Despite a lot of noise, only China and steel/aluminium tariffs have been put in place. It’s possible that the other threats never come to pass. The same could be true for immigration; the huge wave of deportations is yet to crashTax cuts and deregulation help just enough. Businesses get just enough of a leg up to keep nominal growth humming.B: Too hotThe hard data remains strong. See above.Trump’s tariffs result in higher prices. In last week’s ISM surveys and the University of Michigan consumer sentiment report, business owners and households said they already saw evidence of tariff-related price rises and expected more to come. Maybe this will be a one-time price shock and imports will be replaced quickly by substitute goods — but maybe not. Deportations increase prices and hold unemployment down. Trump’s efforts to round up undocumented migrants raises prices, including wages, in sectors such as agriculture and construction.  Doge doesn’t matter. It is possible that Elon Musk, for political or logistical reasons, loses his war on the deep state and its effect on employment is limited. Tax cuts help too much. At this point no one needs reminding what very loose fiscal policy can do to prices. C: Too coldThere are cracks in the economic data. Recent consumer sentiment reports didn’t come from nowhere. Walmart recently projected sales growth for this year barely above the current rate of inflation. While unemployment is low, low hires and quits imply economic uncertainty. The ISM services survey has slipped into contraction, and there is reason to think that the uptick in the ISM manufacturing is because of manufacturers trying to front-run tariffs and an inventory restocking cycle, rather than strong end demand. Uncertainty kills demand and investment. Ambiguity is a good negotiating tactic and a bad economic strategy. Lower fiscal spending puts pressure on profits. Government deficits have a way of showing up as corporate surpluses. If Doge does meaningfully shrink the budget, profit margins are likely to decline, and then . . . Falling asset prices create a negative wealth effect. Everything is expensive. If that reverses, it will reinforce the slowdown. Deregulation never comes: So far, the Trump administration has looked more like the Biden administration on corporate regulation than the market expected. Recently, his regulators endorsed FTC chair Lina Khan’s merger guidelines from 2023, much to Wall Street’s dismay.D: StagflationThere are cracks in the economic data (see above).Tariffs raise prices and slow demand. Deportations increase prices and hurt growth: Immigration crackdowns could reduce real growth by as much as 0.4 per cent in 2025, according to Brookings. And the lack of cheap labour could bump up prices, particularly for food and construction.Federal lay-offs hurt. Torsten Slok of Apollo estimates that as many as 1mn government employees and contractors could lose their jobs — a 15 per cent increase to the current level of unemployment. Unhedged is split on which scenario is the most likely. Rob leans towards too hot: the recent bad economic data feels like a blip and inflation really looks sticky, especially with tax cuts coming. Aiden leans more towards stagflation: inflation is sticky and tariffs will make it stickier, meanwhile, the economy is already slowing, with more headwinds to come. Let us know what you think.One good readA Russian quandary.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 hereFree Lunch — Your guide to the global economic policy debate. Sign up here More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldThe writer is senior research fellow on China in the Asia-Pacific Programme at Chatham HouseWhile Europe remains outraged by the Trump administration’s controversial groundwork on ending the war in Ukraine, some officials have questioned whether China might be able to step up its peace brokering efforts. Beijing’s continued approach of cool distance makes it a reticent yet critical potential player in negotiating a ceasefire — but the situation is complex. As has been shown by its interventions on the Israel-Hamas conflict, China is keen to raise its stature as a global peacemaker. However, in the case of Ukraine, it seems to want to do this without burdening itself with the substantive responsibility of providing security guarantees.China enjoys a close relationship with Russia. Weeks prior to Vladimir Putin’s full-scale invasion of Ukraine, the two reaffirmed the “no limits” partnership first mentioned by Beijing in 2021. Nato considers China a “decisive enabler” of the Kremlin’s war effort, with Beijing providing critical support to Moscow’s defence industrial base.This strong inclination to sustain ties with Russia is driven by geographic and strategic necessity. The two countries share a border of 4,300km, almost equivalent to the length of Europe. Beijing’s long rivalry with the US and the American-led world order, heightened by the first Trump administration’s pursuit of a China containment strategy, colours its view of its bond with Moscow. In recent years the two have been able to demonstrate great-power status together on the world stage through joint military exercises and co-ordination within multilateral organisations, counterbalancing US dominance.Yet, in light of Trump’s sudden U-turn on policy towards Ukraine, Beijing is now worried about a rapid US-Russia rapprochement. While nominally supportive of the “consensus” between Washington and Moscow, closer ties between the two would make Beijing uncomfortable after investing so much both in trade expansion and diplomatic capital in its bilateral relations with Russia. As Moscow’s top trading partner, China wields substantial economic leverage over the Kremlin. It could use this to encourage Russia to accept a ceasefire. Having a voice — albeit a smaller one — in a potential ceasefire deal would not run against China’s interests. It might actually present a confluence of interests with the US.Beijing’s reluctance to be an active peace broker is also due to its trust deficit with European political elites. Chinese leaders’ several recent trips to Europe were intended to prevent further damage to ties with the continent since Russia’s full-scale invasion of Ukraine. Yet Beijing’s efforts did not go down well with the European audience, most of whom perceive Russia and its allies in black and white terms. The more Beijing tries to explain its relationship with Moscow, it seems, the deeper the mistrust Europe feels towards it. The EU’s talk of “de-risking” in economic terms has added further strains to its relations with Beijing. China also has to be cautious not to overtly exploit the current breakdown of the transatlantic alliance. Doing so might rattle Trump to press for an even more stringent China containment strategy globally.Beijing’s limited engagements in brokering peace might not meet expectations from Europe and Ukraine, but it has never been China’s real intention to get involved in the back and forth of negotiations. It can continue to ‘make the right noises’ while navigating a conflicting set of interests, simultaneously responding to Trump’s unorthodox diplomatic strategy coupled with his thinly veiled threats of economic warfare against China.There are hints that the Chinese leadership may feel conflicted about the Kremlin. Judging from various official statements released since May 2022, Beijing now omits any inclusion of the infamous “no limit” partnership. The quiet removal of this bromance language may indicate a sense of agonising on Beijing’s part about its links to Moscow. Permanent alignment with Putin’s total confrontation with the west may have disastrous consequences for China’s own political economy, but abandoning its biggest nuclear neighbour is equally perilous. Like any relationship — even one ‘without limits’ — Beijing’s ties with Moscow must have boundaries.China must now strike a delicate balance in its dealings with Russia. It should use the opportunity of ending the war in Ukraine to elevate its status as a world power. But it must also maintain its relationship with Russia — crossing any red lines risks repeating the Sino-Soviet split of 60 years ago. More

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was $409 now $99 for your first yearFT newspaper delivered Monday-Saturday, plus FT Digital Edition delivered to your device Monday-Saturday.What’s included Weekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysis More

was $409 now $99 for your first yearFT newspaper delivered Monday-Saturday, plus FT Digital Edition delivered to your device Monday-Saturday.What’s included Weekday Print EditionFT WeekendFT Digital EditionGlobal news & analysisExpert opinionSpecial featuresExclusive FT analysis More