Aurelia Butler

BENGALURU (Reuters) – A rallying U.S. dollar will stand resolute and may even trade more strongly than predicted in coming months if the policies of the Federal Reserve and other major central banks diverge, according to FX strategists polled by Reuters.Recovering from a lull in late-2023, the greenback has shrugged off forecasts for dollar weakness from strategists in Reuters polls over the past year with aplomb, and is already up 4.3% this year against a basket of major currencies.It is also more likely to trade higher than predicted rather than lower over the coming three months, according to a near-75% majority of forex strategists, 42 of 58, in an April 29-May 2 Reuters poll.”We remain steadfast in the belief a strong dollar is going to persist. A strong U.S. economy, evident in the activity numbers and stickier inflation, will make it difficult for the Fed to start cutting rates,” said Paul Mackel, global head of FX research at HSBC.”As a result…the dollar will remain in pole position versus other major currencies in coming months,” he added.Fed Chair Jerome Powell said on Wednesday after the central bank’s most recent meeting that policymakers would “take longer than previously expected” to gain adequate confidence in inflation falling back to the 2% target, reinforcing remarks in a recent speech.Financial markets are now pricing in a 56% chance of a first rate cut of at least 25 basis points in September, but a greater 68% chance of a cut in November, according to CME FedWatch tool, in line with economists’ predictions in a separate Reuters survey from two weeks ago, and down from six expected in January.That would lead to considerable policy divergence among the world’s major central banks, which after raising rates in tandem to levels not seen for several decades to tackle runaway inflation, may start cutting at different times.The European Central Bank and the Bank of England are expected to cut rates earlier than the Fed, in June and August, respectively, according to separate Reuters surveys. Median forecasts from 80 currency strategists in the poll were for the euro to hold at its current $1.07-level until end-July and then gain only slightly to $1.08 in six months, down from the $1.10 predicted in last month’s survey and the weakest forecast in Reuters polls so far this year.”We’re really surprised at how (U.S.) inflation has evolved – I would have expected it to be at least a couple-tenths of a percent lower by now,” said Steve Englander, head of G10 FX research at Standard Chartered (OTC:SCBFF). “The backing off of expectations of Fed rate cuts has made a real difference – (the current) episode of dollar strength seems to have more legs to it,” he added.The Japanese yen, down about 10% for the year and marking a 34-year low of 160.03/$ earlier this week, recovered some of its losses on suspected intervention from Japanese authorities.It will strengthen only slightly to 152/$ by end-July, but then be one of the biggest gainers among major currencies and rise about 8% to 143.67/$ in 12 months, the survey showed.However, it was more likely the currency would trade weaker than predictions than stronger in three months, according to 13 of 18 respondents answering an additional question. “With U.S. yields heading higher and the dollar strengthening, what the Bank of Japan is really trying to do is buy time to slow the pace of (recent) weakness until fundamentals start to move in favour of a stronger yen,” said Lee Hardman, senior currency analyst at MUFG.(For other stories from the May Reuters foreign exchange poll:) More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.To the surprise of many, Federal Reserve chair Jay Powell struck a decidedly dovish tone in his press conference on Wednesday. This came immediately following the issuance of the central bank’s periodic policy statement in which the wording on inflation was hardened by stating that “in recent months, there has been a lack of further progress towards the committee’s 2 per cent inflation objective”.I suspect that Powell’s rather relaxed dismissal of sticky inflation will prove appropriate, but not in the way he expects. Economic developments are likely to show that the Fed is unable to get to 2 per cent unless it is willing to impose large and unnecessary damage on the economy. Indeed, 2 per cent may not be the right inflation target for an economy going through so many structural changes, both domestically and internationally.By brushing aside three months of higher-than-expected price and labour cost inflation, Powell initially triggered a significant fall in interest rates and a sharp rise in stocks before a retracement. His dovishness is by no means precedent setting. Indeed, some of Powell’s press conference remarks in the past have been more dovish than the actual committee discussions on policy, as shown by the release of meeting minutes a few weeks later.In contrast to his relatively strong characterisation of the economy, there is mounting evidence that the US economy is slowing. First-quarter GDP, the latest monthly ISM index on manufacturing activity and consumer sentiment measures all came below the consensus forecasts. Moreover, as noted this week by the Financial Times, an increasing number of companies are reporting that “poorer consumers in the US are cutting their spending in the face of persistent price rises”. Starting with limited financial and human resilience, they have experienced the sharpest drawdown in pandemic savings and a significant increase in debt. And now they could well see an increase in unemployment that would then spread weakness up the income ladder.At the same time, sticky inflation is likely to prove more persistent than Powell expects, given ongoing, multi-year structural transitions that are inherently inflationary. Domestically, the US has been moving away from deregulation, liberalisation and fiscal prudence to tighter regulation, industrial policy and chronic fiscal looseness. Internationally, globalisation has been giving way to fragmentation, with systemically influential countries and a rising number of multinationals slowly but surely rewiring supply chains to put national security and resilience ahead of efficiency and immediate cost-effectiveness. Such factors do not appear to have prompted Powell’s dovishness, at least judging by his remarks. But his resistance to validating the more hawkish policy stance priced by markets is appropriate for this world of weakening growth dynamics and structurally sticky inflation. It would avoid the unnecessary damage that would be caused by weaker growth. This includes worsening inequality, greater resource misallocations and a higher risk of financial instability.The biggest risk facing the US and the global economy came from elsewhere in Wednesday’s press conference. Asked about the level of inflation, Powell responded: “3 per cent cannot be in a sentence with satisfactory.” It would not surprise me that the appropriate inflation is closer to 3 per cent than the 2 per cent target, an arbitrary specification that originated in the early 1990s in New Zealand. Yet the internal trauma and external credibility damage caused by the Fed’s big 2021 policy mistake leads it to repeat at every meeting that the Fed “is strongly committed to returning inflation to its 2 per cent objective”.What is at stake here goes beyond the US. A failure to recognise the implications of multi-year structural changes would complicate monetary policy management in much of the world. Emerging economies would find it hard to reduce interest rates as warranted by their domestic conditions, fearing that this would undermine their already depreciated currency in a disorderly way. Japan’s economic and financial normalisation would be hindered by a too-weak yen. And the European Central Bank, while correct in stating that it is not “Fed-dependent”, would find that there is a practical limit on how far it can diverge from the Fed.For now, we should welcome Powell’s dovishness even though it’s not for the reasons he puts forward. We should also hope that, over time, he and his Fed colleagues will become more strategic in their approach to policy signalling and actions. More

Inflation rose to 1.4% in April from 1% in March, outpacing the 1.1% rate forecast by a Reuters poll of economists, strengthening the Swiss franc versus the euro and the dollar.Month-on-month, prices in Switzerland rose 0.3%, higher then the 0.1% rate forecast.The SNB declined to comment.April was the 11th month in a row the rate remained within the central bank’s 0-2% target range, and markets have priced in a 60% probability of a cut to 1.25% at its next meeting on June 20.”With energy prices easing again and the further normalisation expected in services prices due to weak domestic demand, conditions remain in place for the SNB to cut the policy rate again in 2024, perhaps already at the next meeting in June,” GianLuigi Mandruzzato, an economist at EFG Bank, said.Although the April upturn was stronger than expected, it did not indicate inflation was becoming entrenched, for example via higher wages, UBS economist Alessandro Bee said.”We still think that the SNB is willing to bring monetary policy from ‘restrictive’ territory more to a ‘neutral’ territory in 2024,” he said.”The current policy rate of 1.5% is rather on the restrictive side which is why we still think that a rate cut in June to 1.25% is likely – especially when the ECB will most likely start its rate cutting cycle in June.” More

COLUMBUS, Ohio (Reuters) – On a noisy factory floor in Columbus, Ohio, trade union apprentice Jorge Herrera moved quickly as he assembled ventilation ducts to be used in the construction of a large car manufacturing plant on the outskirts of the city. The 27-year-old asylum seeker from Nicaragua, who had welding experience back in his home country, crossed the U.S.-Mexico border two years ago. He struggled with unstable jobs before he was hired by the sheet metal workers’ union this year despite speaking little English, passing his entry test with the help of a translation app.He works alongside Sofia Mattern Mondragon, a 22-year-old Mexican-American worker who grew up in the United States. She’s the only other Spanish speaker on the floor, but said she sometimes struggles to translate the more technical metal work terms.A few machines over, Tim Lyman, 60, said over the hammering of duct parts and the screech of metal saws, that while communication can be tricky, “if they want to learn, I’ll teach them.”The arrival of record numbers of migrants at the U.S.-Mexico border has posed a political problem for U.S. President Joe Biden as he seeks reelection in November, up against former President Donald Trump, who has made cracking down on immigration a top issue in his campaign. A White House spokesperson said the Biden administration has called on Congress to pass bipartisan immigration reform legislation that has been stymied by Republicans. It has also sped up processing work permits and created new legal pathways through which hundreds of thousands of migrants were immediately eligible to apply for permits. A Trump campaign spokeswoman Karoline Leavitt slammed these efforts as taking jobs from Americans.But in Columbus, local union workers have welcomed the extra hands from migrants and refugees with work permits, union officials say, amid construction labor shortages. Help accessing immigrant communities to find workers to hire has been among the top three requests the Columbus Chamber of Commerce has fielded from local businesses in recent years, said Kelly Fuller, the chamber’s vice president of talent and workforce development. Nationwide, the increase in the number of available workers from 2021 to 2023 was the fastest two-year jump this century, with roughly half the growth coming from people born elsewhere, and U.S. Federal Reserve staff recently raised their economic growth estimates to account for higher immigration. A number of European countries, such as Spain, are also experiencing boosts to their economies fueled by migrant labor. In the U.S., the expansion of the labor force has kept the economy growing and consumer spending up without driving inflation even higher, said Brookings Institution economist Tara Watson.Immigration is bolstering a U.S. workforce that would otherwise be set to decline as the baby boomer generation retires, she added. “And especially in some fields, we have long-run structural needs that Americans are just not going to fill,” Watson said, pointing to a lack of home health aides and other direct care workers. ‘FIELD OF DREAMS’Around Columbus, large construction projects abound, including for Intel (NASDAQ:INTC) chip factories that President Joe Biden called “literally a field of dreams” in his 2023 State of the Union address. Columbus is among the fastest growing cities in the United States, with factories and warehouses dotting its perimeter.But with a shortage of skilled labor, unions are discussing how to reach and retain people like Herrera, including by partnering bilingual workers with new hires. Unions have distributed flyers about their apprenticeship programs in Spanish and other languages, said Dorsey Hager, a union official who sits on the Columbus/Central Ohio Building & Construction Trades Council.Herrera found out about the opportunity after he stopped by the factory and asked if they had work. First-year sheet metal apprentices earn $20.58 an hour plus benefits, according to a union flyer. The wage upon completion of the four year apprenticeship is around $36 an hour.”It’s something good for the long term,” Herrera said.He regularly sends money back to Nicaragua, where his wife and two children still live. He left because of political violence, he said, and hopes to bring his family to the United States should he win asylum.Columbus is becoming an increasingly popular destination for migrants. More than 9,000 immigrants had a Columbus address in new immigration court proceedings in fiscal year 2023, a 350 percent increase from fiscal year 2019, according to immigration court data made available by the Transactional Records Access Clearinghouse. Overall in Ohio since the start of the 2024 fiscal year, the Biden administration has issued around 16,300 work permits to asylum applicants and certain people who received humanitarian parole, including under the new legal pathways, a Department of Homeland Security official said. Around 3,700 more permits were granted to applicants for Temporary Protected Status.’HELP EACH OTHER’In Central Ohio, advocates Claudia Cortez-Reinhardt and Isbel Alvarado have helped unions connect with dozens of immigrant workers. At town halls, Cortez-Reinhardt said, workers get excited when they hear about the opportunity of a secure income along with education and health benefits.Even with work permits, many new immigrants face barriers such as language and transportation in the car-dependent city of Columbus. One of the sheet metal apprentices they helped, Ronal Pinto, 45, used to work as a mechanical engineer in an aluminum foil factory in Venezuela.He fled his home country for Chile, he said, but after four years he and his wife decided to head to the U.S. to ask for asylum there. They settled in Columbus, where he had friends from Venezuela who had arrived earlier. The first two years were difficult, he said, with a string of temporary, low-paid jobs. Now, he feels like he has made it.He lives with his wife, their toddler, his parents-in-law and sister-in-law in a small house, a 45-minute drive from the construction site where he works.On Saturdays, Pinto attends English classes at a nearby college. He is far from fluent, he said, but is working hard to improve. A few of his coworkers are trying to learn some Spanish to communicate with him, too, he said.Around the city, he has noticed more Venezuelans and he is happy to be able to extend a helping hand to newer arrivals, including letting them know about the apprenticeship programs. “We help each other. At least us Venezuelans, we have always been this way,” Pinto said. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Global political tensions and healthcare inequities are undermining efforts to combat the biggest disease threats, the new head of one of the world’s biggest biomedical charities has warned.Rising friction between western countries and China and Russia had combined with a “sense of unfairness” in poorer countries over Covid-19 pandemic resources to make it harder to broker international deals, said the Wellcome Trust’s John-Arne Røttingen.His remarks come as the World Health Organization’s 194 member states make a final push to agree a landmark treaty on pandemic preparedness ahead of a late May deadline. In September, countries are due to gather on the sidelines of the UN General Assembly to discuss how to tackle the growing danger of antibiotic-resistant “superbugs”.“We have a more difficult environment to find common solutions across countries, because of the geopolitical situation,” Røttingen told the Financial Times in Wellcome’s London headquarters. “West-east tension is increasing . . . and the pandemic has increased the divide between the [richer] north and [poorer] south.”Big international meetings on pandemic preparedness, universal health coverage and tuberculosis last year “didn’t achieve a lot”, Røttingen said. The difficult talks on the pandemic treaty since then have highlighted how delayed access to Covid vaccines in some poorer countries had “created a sense of unfairness that now needs correction”, he added.“We have strong voices from Africa saying that equity needs to be in the forefront on finding solutions — and that the high-income countries, when we really had a global crisis, attended first and foremost to ourselves,” said Røttingen, who is Norwegian. “So definitely the north-south divide on issues like equity and access to medicines has been increasing.”Wellcome Trust chief John-Arne Røttingen said big international meetings on pandemic preparedness, universal health coverage and tuberculosis last year ‘didn’t achieve a lot’ More