$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
$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
$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
$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
SINGAPORE (Reuters) – The dollar firmed on Monday as traders pondered the ramifications of U.S. President Donald Trump’s tariff plans at the start of a week where the Federal Reserve is widely expected to hold interest rates steady. The dollar clocked its weakest week since November 2023 last week on ebbing fears of tariffs from the Trump administration, but those worries resurfaced after he said he will impose sweeping measures on Colombia.The retaliatory moves, including tariffs and sanctions, comes after the South American country turned away two U.S. military aircraft with migrants being deported as part of the new U.S. administration’s immigration crackdown.That led to the Mexican peso, a barometer of tariff worries, sliding 0.8% to 20.426 per dollar in early trade. The Canadian dollar was a bit weaker at $1.43715.The euro was 0.14% lower at $1.0474 ahead of the European Central Bank policy meeting this week where the central bank is expected to lower borrowing costs. Sterling last fetched $1.24615. That left the dollar index, which measures the U.S. currency against six units, at 107.6, still close to the one-month low it touched last week. Investor focus this week will be on the central banks and how policymakers are likely to react after Trump said he wants the Federal Reserve to cut interest rates.The Fed is expected to keep rates unchanged when it concludes its two-day meeting on Wednesday, though investors will be watching for any clues that a rate cut could come in March if inflation continues to ease closer to the U.S. central bank’s 2% annual target.Data on Friday showed that U.S. business activity slowed to a ninth-month low in January amid rising price pressures, while separately U.S. existing home sales increased to a 10-month high in December.”Optimism has surged about Trump’s growth-friendly America First agenda, inflationary pressures have intensified to a four-month high, and businesses are taking on employees at the quickest pace since 2022,” said Kyle Chapman, FX markets analyst at Ballinger Group. “That picture is suggestive of a reheating labour market, and strongly supportive of an extended pause at the Fed.” In other currencies, the Australian and New Zealand dollars were slightly lower but remained closer to their one-month highs touched last week. The Australian markets are closed for the day. The Japanese yen strengthened nearly 0.4% to 155.41 per dollar in early trading after the Bank of Japan raised interest rates on Friday to their highest since the 2008 global financial crisis and revised up its inflation forecasts.BOJ Governor Kazuo Ueda said the central bank will keep raising interest rates as wage and price increases broaden but offered few clues on the timing and pace of future rate hikes.Mark Dowding, chief investment officer at RBC BlueBay Asset Management, said the renewed attention back on the Japan story could provide a catalyst for the yen to appreciate in the weeks ahead. “The Japanese currency remains extremely undervalued on most valuation models and, as interest rate differentials narrow, we think that this will help the yen perform better in 2025.” More
TOKYO (Reuters) – The Bank of Japan, after clearly signalling last week’s interest rate hike, may return to its accustomed fuzzy guidance about central bank policy to maintain flexibility when it eventually begins to consider how much tightening is enough.The BOJ fumbled its communication in December, surprising investors when it left rates steady, but then telegraphed Friday’s increase so unambiguously that markets had 90% priced it in and took the move in stride.That shift to clearer guidance, an approach the U.S. Federal Reserve used in August to signal a policy shift, may prove temporary. Japanese policymakers fear being led by the markets and are unsure how far the BOJ can raise rates without cooling growth, say analysts and people familiar with the central bank’s thinking.Policymakers are wary of feeling they must give clear signals before each meeting, given an uncertain economic outlook, and they lack conviction about the Goldilocks “neutral” interest rate that neither chills nor overheats the economy.After the BOJ caught markets off guard with December’s decision, Governor Kazuo Ueda flagged uncertainty over U.S. economic policy ahead of Donald Trump’s return as president as a key reason it had refrained from raising rates.Considered dovish, Ueda’s comments pushed down market pricing of January action to 46% from 70%.Keen to avoid startling markets again, the BOJ then laid the groundwork for the January hike, taking a page from Fed Chair Jerome Powell, who had explicitly signalled an imminent shift by pronouncing that “the time has come for policy to adjust”. COSTS OF CLARITYUeda and his deputy Ryozo Himino each said during the week before Friday’s hike that the BOJ board would “debate whether to raise rates” – effectively pre-announcing its decision to double short-term rates to 0.5%.”Without those comments, a January hike would have been a huge surprise,” said Naomi Muguruma, chief bond strategist at Mitsubishi UFJ (NYSE:MUFG) Morgan Stanley (NYSE:MS) Securities. “The BOJ probably had no other choice.”Asked about the advance warnings, Ueda said after Friday’s decision they were simply a “reminder” that the board would discuss the feasibility of changing policy at every rate review.But while the strategy let the BOJ smoothly raise its policy rate to the highest in 17 years, it is not without cost.Markets may focus too much on BOJ commentary, rather than scrutinising economic and price data, to gauge the bank’s next rate hike, analysts say.Giving explicit advance signals, in addition to making the BOJ feel boxed in, could breach Japanese law stipulating the nine-member board must debate and sign off on rate decisions at each policy meeting.”It raises some alarm bells,” a former policymaker said of the BOJ’s communication about Friday’s rate hike. “The market ought to be a guide for central banks on how the economy is doing. But if this practice continues, the BOJ will only see in the market a reflection of itself.”‘GREATER VARIABILITY’Another reason to revert to ambiguity is uncertainty over the end point for tightening.BOJ staff estimates Japan’s nominal neutral rate between 1% and 2.5%. While that has not been a factor so far with the policy rate so low, two more hikes would bring it to the bottom of that range – a level many analysts consider the neutral rate.Indeed, while signalling the bank’s resolve to keep raising interest rates, Ueda gave few clues on Friday of the pace or timing of further hikes and said it was hard to pin down Japan’s neutral rate in real time.”Because the BOJ doesn’t know where exactly the neutral rate is, it would have to wait about six months after each hike to check the health of the economy,” said Izuru Kato, chief economist at Totan Research. “Only after judging that the neutral rate is still distant would it raise rates again.”Other complications loom as the BOJ eyes further rate hikes, which could heighten challenges in trying to convince the public of the need to keep pushing up borrowing costs.The bank justified Friday’s increase by citing prospects of sustained wage gains, but it is uncertain whether consumption can weather rising living costs.Trump’s threats of higher tariffs could weigh on Japan’s export-reliant economy and business sentiment.”The BOJ’s hands are looking increasingly tied with the complex task of managing price pressures, reflation efforts and market expectations all together,” said Frederic Neumann, chief Asia economist at HSBC Bank, adding that risks surrounding Trump’s policy cannot be dismissed.”These all translate to greater variability as to the policy rate path going forward.” More
Last Friday, the Republican president floated the idea of shuttering FEMA during a trip to disaster areas in North Carolina and California, hit by a hurricane and massive wildfires. WHAT IS FEMA? The federal agency’s mission is to help people before, during and after disasters, including hurricanes, tornadoes, earthquakes and floods. FEMA brings in emergency personnel, supplies and equipment to stricken areas.Its reputation was battered by its poor handling of Hurricane Katrina in 2005, and the agency has struggled to recover. Trump criticized FEMA on the campaign trail and since taking office on Monday. FEMA has a workforce of 20,000 people that can swell to more than 50,000 active members during major disasters, according to its website. It has 10 regional offices and the capacity to coordinate resources from across the federal government. Officially created in 1979, it became part of the Department of Homeland Security in 2004.TRUMP CRITICISMTrump has accused FEMA of bungling emergency relief efforts in North Carolina and said he preferred that states be given federal money to handle disasters themselves. During a visit Friday, he said the agency should be fundamentally reformed or even scrapped.”FEMA has turned out to be a disaster,” he said during a tour of a North Carolina neighborhood destroyed by September’s Hurricane Helene. “I think we recommend that FEMA go away.”Trump also criticized California’s response to recent wildfires that devastated Los Angeles, but he pledged during a visit to work with California Governor Gavin Newsom and offered help to L.A. Mayor Karen Bass. FEMA STAFFING FEMA says it is currently supporting 108 major disasters and 10 emergency declarations. According to its daily operations briefing, 17% of its disaster-response workforce is available. After Trump said he wanted to overhaul or scrap FEMA, the agency’s acting head Cam Hamilton wrote to staff and assured them that “FEMA is a critical agency which performs an essential mission in support of our national security.” Hamilton is a former Navy SEAL Trump appointed to temporarily lead the agency after the Republican president took office last week. FEMA FUNDINGFunding for the agency has soared in recent years as extreme weather events boosted demand for its services. The agency received $29 billion from Congress in December to fund ongoing relief efforts.A FEMA spokesperson told Reuters last week the agency has not received additional funding to reimburse states for ongoing recovery efforts after Hurricane Helene devastated North Carolina and the U.S. Southeast in late September.There has been no presidential action or congressional appropriation under the current Trump administration to provide additional funds to FEMA for hurricane recovery efforts, and no credible reports of such funding. DISINFORMATION CAMPAIGN While responding to real-life disasters, FEMA has also battled a slew of false rumors about how its funds have been used. Before his re-election, Trump and his Republican allies accused former President Joe Biden and Vice President Kamala Harris, the Democratic candidate for president, of using federal emergency money to help people who were in the country illegally. U.S. Representative Marjorie Taylor Greene went as far as to say government officials control the weather.FEMA has been the target of so many falsehoods it has set up a rumor response page on its website to tamp them down. One entry addresses the accusation that FEMA diverted funs to the border.”This is false. No money is being diverted from disaster-response needs. FEMA’s disaster-response efforts and individual assistance is funded through the Disaster Relief Fund, which is a dedicated fund for disaster efforts. Disaster Relief Fund money has not been diverted to other, non-disaster related efforts.” FEMA FAILURES The agency has been criticized for emergency responses to hurricanes that fell short, including Hurricane Maria in Puerto Rico in 2017. Residents accused then-President Trump of being slow to dispatch aid after Maria and clumsy in his public remarks once it was clear the U.S. territory had been devastated. In 2005, Hurricane Katrina battered New Orleans and flooded parts of the city as residents crowded into ill-prepared shelters. Katrina devastated the Gulf of Mexico coast and caused more than 1,800 deaths. It also shattered the reputation of FEMA, which was sharply criticized for its response. More
(Reuters) – A clear majority of British businesses look set to cut the size of pay awards for staff in response to coming tax hikes and they remain pessimistic about the outlook for the economy, two surveys showed on Monday.Data provider Incomes Data Research said 69% of employers it canvassed were extremely or moderately likely to reduce pay awards to offset an increase in payroll taxes announced by finance minister Rachel Reeves in her first budget last October.More than half of those respondents said they were “extremely likely” to slow their pay increases.The survey sheds light on a key uncertainty facing the Bank of England ahead of its Feb. 6 interest rate announcement. The BoE is trying to gauge whether employers will react to the tax hike by cutting jobs, wages or profits, or by raising prices. Most investors and economists think the central bank is likely to cut interest rates by a quarter point next week but the picture for the rest of the year is less clear.A separate survey published on Monday by the Confederation of British Industry showed companies were only slightly less pessimistic about the coming three months than they were in December.The CBI’s growth indicator – which measures expectations among businesses across manufacturing and services, including retail – barely rose in January to -22 from a more than two-year low of -24 in December.”After a grim lead-up to Christmas, the New Year hasn’t brought any sense of renewal, with businesses still expecting a significant fall in activity,” said Alpesh Paleja, interim chief economist at the CBI.”Alongside plans to cut staff and raise prices further, this risks an increasingly awkward trade-off for policymakers.”Reeves has said her tax increases are a one-off to put the public finances on a stable footing while raising funds for services and investment. She is expected to make a speech this week on her plans to speed up Britain’s slow economy.One third of employers in the IDR survey said they were likely to make redundancies while 45% said they would absorb the impact of tax increases through reduced profits or other means.IDR said 37% of employers planned to award pay rises of between 2.0% and 2.99% this year, while 43% predicted pay rises of between 3.0% and 3.99%. Only 14% expected 4% or more, offering some relief to the BoE which is worried about lingering inflation pressures in the economy.IDR surveyed 168 employers covering 1.2 million workers in November and December. The CBI report covered 990 companies who were surveyed between Dec. 19 and Jan. 14. More
