Economy

SINGAPORE (Reuters) – The dollar took a breather on Friday, on track to cap off a wild week with a slight gain as markets weighed the impact of Donald Trump’s impending return to the White House and what that would mean for the U.S. economy and its rate outlook.Beijing concludes its five-day meeting of the Standing Committee of the National People’s Congress (NPC) later in the day, which investors will be closely watching for more details of China’s stimulus measures that could in turn lift the yuan and Antipodean currencies.The dollar further unwound some of its sharp gains from earlier in the week as traders closed out profitable bets on a Trump presidency after his election victory.That helped lift sterling back toward the $1.30 mark, while the yen similarly got some respite and hovered closer to the 153 per dollar level.The euro fell 0.07% to $1.0795 and was headed for a 0.35% weekly fall, weighed down by a resurgent dollar and amid a political crisis in Germany, where the already awkward coalition led by Chancellor Olaf Scholz collapsed late on Wednesday.The Federal Reserve on Thursday cut interest rates by 25 basis points as expected, but flagged a cautious and patient approach to subsequent easing.”(The) meeting doesn’t change the view that the Fed is still on the path to lower rates and another rate cut in December is likely unless the inflation and labour market data surprises materially to the upside,” said Kerry Craig, global market strategist at J.P. Morgan Asset Management.”For 2025, however, the picture will be complicated by potential for trade and tax policies to add to the inflation outlook.”The U.S. central bank’s rate trajectory has been clouded by Trump’s election victory as his plans for hefty tariffs are seen as stoking inflation.Traders have since reacted to the outcome of the election results by trimming bets on Fed cuts next year.”If the incoming Trump administration does indeed levy significant tariffs or adopt other inflationary policies, then we believe the Fed funds rate may bottom out next year closer to 4% than to 3%,” said Wells Fargo (NYSE:WFC) chief economist Jay Bryson.Sterling last traded $1.2983, recovering from its fall to a roughly three-month low earlier in the week.The pound had rallied 0.8% on Thursday after the Bank of England cut interest rates but said it expected UK inflation and growth to pick up more quickly than it had previously anticipated.The yen eased 0.14% to 153.15 per dollar.Against a basket of currencies, the dollar ticked up 0.03% to 104.44, on track to gain just above 0.1% for the week. It had rallied a sharp 1.53% on Wednesday as “Trump trades” picked up strongly.FURTHER SUPPORTFriday’s main event revolves around the outcome of China’s NPC Standing Committee meeting, with anticipation of further support from Beijing having cushioned some of the impact from a second Trump presidency on Chinese assets over the past few days.The President-elect has threatened to impose 60% tariffs on U.S. imports of Chinese goods.The yuan was last a touch lower at 7.1532 per dollar in the offshore market, while the Australian dollar, often used as a liquid proxy for its Chinese counterpart, dipped 0.13% to $0.6673.The New Zealand dollar was little changed at $0.6022.”I think it’s very likely that we will see significantly more fiscal and monetary stimulus from Beijing, which could offset some of the trade headwinds,” said David Chao, global market strategist for Asia Pacific ex-Japan at Invesco.”All eyes are on what may emerge from China’s policy toolkit after the conclusion of the NPC standing committee meeting.”Data on Thursday showed China’s exports grew at the fastest pace in over two years in October as factories rushed inventory to major markets in anticipation of further tariffs from the U.S. and the European Union, as the threat of a two-front trade war loomed large. More

The Recruitment and Employment Confederation/KPMG said its gauge of starting pay for permanent roles slowed to 52.5 in October from 52.8 in September for its weakest level since February 2021 during the coronavirus pandemic. REC’s permanent placements index fell to 44.1 from 44.9 in September and the rate of contraction was the steepest since March. The survey said firms held off hiring amid uncertainty in the lead-up to the new Labour government’s budget.”There is little in the pay data in today’s report that suggests the Bank of England should step away from further cuts to interest rates, which will also boost business confidence,” REC chief executive Neil Carberry said. The BoE, which is watching pay growth closely as it tries to gauge how much inflation pressure remains in the economy, reduced borrowing costs by a quarter-point to 4.75% from 5% on Thursday. It said further cuts were likely to be gradual.REC said vacancies fell for the 12th month in a row, suggesting less demand for staff, and the number of available candidates for jobs rose for the 20th successive month – with businesses reporting the sharpest pace of increase in temporary staff availability in nearly four years. Jon Holt, group chief executive at KPMG, said measures announced by finance minister Rachel Reeves in last week’s budget could push firms to slow their hiring further.Reeves on Oct. 30 unveiled 40 billion pounds ($51.94 billion) in tax rises, much of it through higher social security contributions paid by businesses alongside an increase in the minimum wage for most adults, changes that are likely to hurt hiring and pay growth.”With many of the tax rises announced in last week’s budget impacting businesses, the expectation from some chief executives is that this could further dampen hiring as companies grapple with absorbing any extra costs,” Holt said.($1 = 0.7701 pounds) More

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HONG KONG (Reuters) – The Hong Kong Monetary Authority (HKMA) on Friday cut its base rate charged via the overnight discount window by 25 basis points to 5.0%, tracking a move by the U.S. Federal Reserve.Hong Kong’s monetary policy moves in lock-step with the United States as the city’s currency is pegged to the greenback in a tight range of 7.75-7.85 per dollar. More

Minister Choi Sang-mok said the government’s 24-hour monitoring system, which had been run to monitor the Middle East situation, would be expanded to cover financial and foreign exchange markets.Choi made the comments at a meeting with top economic and financial policymakers to review the implications of the U.S. Federal Reserve’s policy meeting outcome. More

(Reuters) -Australian lender ANZ Group reported lower-than-expected annual cash earnings and slashed its dividend on Friday as a challenging period of intense deposit and lending competition and high costs crimped its margins.”Competition in the (core banking) sector has continued to be intense, particularly in home lending and deposits,” ANZ Chief Executive Shayne Elliott said in a statement.Australian banks have been struggling to grow their profits because of stubbornly high expenses and a fierce price war between lenders as customers look for better deals on loans and their deposits.The country’s fourth-largest lender by market value reported a cash profit of A$6.73 billion ($4.49 billion) for the year ended Sept. 30, missing the Visible Alpha consensus of A$6.82 billion and below last year’s A$7.41 billion.Operating income slipped marginally to A$20.81 billion but beat the consensus view of A$20.77 billion.”Overall a soft result that missed market expectations, despite the lower quality beat to markets revenues,” Citi analysts said.The lender’s shares were trading 1.1% lower at A$31.37 as of 2327 GMT, as against the S&P/ASX200 benchmark index’s 0.8% gain.ANZ proposed a final dividend of 83 Australian cents per share, below 94 Australian cents a share last year. It was, however, in line with market expectations.The bank’s net interest margin, a key measure of profitability, fell 13 basis points from last year to 1.57%. Its common equity tier 1 ratio, a measure of spare cash, slipped more than a percentage point to 12.2% as of the end of the financial year.”Higher interest rates are impacting customers and we saw an increase in those requiring hardship support,” Elliott said, referring to hardship packages that banks offer to borrowers in difficult circumstances to ease their repayment obligations.Loan payments overdue for more than 90 days but not yet impaired grew by 47% to A$4.17 billion. Customer deposits were up 11% to A$715.21 billion, although the bank’s institutional division saw a marginal drop in its deposits.Earlier in the week, larger rivals Westpac and National Australia Bank (OTC:NABZY) also reported modest declines in their annual cash profits due to fierce competition as well as a slight uptick in late loan payments.($1 = 1.4972 Australian dollars) More

TOKYO (Reuters) -A dollar rally triggered by Republican Donald Trump’s victory in the U.S. presidential election could heighten pressure on the Bank of Japan to raise interest rates as soon as December to prevent the yen from sliding back toward three-decade lows.Trump’s victory in the U.S. presidential election unleashed sharp dollar gains, as expectations of tax cuts and tariffs on imports drove optimism about economic growth while fueling worries about inflation.The greenback’s strength briefly pushed the yen to a three-month low of 154.71 on Thursday, well off a high of 140.62 hit in mid-September.While a weak yen gives exports a boost, it has become a headache for Japanese policymakers by pushing up fuel and food import costs and in turn hurting consumption.Rising inflation was widely seen as one of the factors behind the massive voter swing against the ruling coalition at last month’s general election.Japan’s top currency diplomat Atsushi Mimura escalated his warning against sharp yen falls on Thursday, saying authorities were ready to act against “excessive” currency moves.One nightmare scenario for policymakers would be a renewed plunge in the yen towards the three-decade trough near 162 to the dollar hit in July – a move that prodded the BOJ to raise interest rates to 0.25% on July 31.Back then, the tumbling yen led to calls from ruling party lawmakers for the BOJ to hike rates, or send clearer signs of its intention to push up borrowing costs.Prime Minister Shigeru Ishiba stunned markets on Oct. 2 by saying the economy was not ready for further rate hikes, though he later toned down his message to say he would not intervene in BOJ policy.”Politicians don’t want a weak yen, so even those who have urged the BOJ to be cautious about raising rates could nod to hikes if yen falls accelerate,” said Tsuyoshi Ueno, senior economist at NLI Research Institute. “In that sense, the weak yen could prod the BOJ into steady rate hikes.”HAND-IN-HANDThe BOJ exited a decade-long radical stimulus in March and raised short-term interest rates to 0.25% in July on the view Japan was making progress towards sustainably achieving its 2% inflation target.While many analysts expect the BOJ to hike rates again by March, they are divided on whether it would act in December – or wait until January or March to gauge more data.The BOJ kept interest rates steady last month but removed language warning of the need to focus on external risks, leaving open the chance of a near-term hike.Renewed yen falls may heighten the chance of the BOJ acting in December, given the BOJ’s sensitivity to the currency’s weakness that pushes up import costs, analysts say.Expectations of a near-term rate hike by the BOJ, coupled with rising U.S. Treasury yields, pushed the benchmark 10-year Japanese government bond (JGB) yield above 1% for the first time in more than three months on Thursday.”The BOJ hasn’t said so clearly but its rate hike in July was likely driven in part by its concern over excessive yen falls,” said Shinichiro Kobayashi, principal economist at Mitsubishi UFJ (NYSE:MUFG) Research and Consulting.”If the yen heads toward 160 to the dollar again, the chance of a rate hike by year-end will increase,” he said.Tomoyuki Ota, chief economist at Mizuho (NYSE:MFG) Research & Technologies, also sees 160-to-the-dollar as authorities’ line in the sand that heightens the chance of a BOJ rate hike – and currency intervention by the government to prop up the yen.In the previous battle with yen falls, the government and the BOJ appeared to work hand-in-hand.Japanese authorities spent 5.53 trillion yen ($35.8 billion) intervening in the foreign exchange market in July to pull the yen off 38-year lows near 162 to the dollar. That month, the BOJ hiked rates and stressed its resolve to keep pushing up borrowing costs.BOJ Governor Kazuo Ueda’s hawkish hints of near-term rate hikes at last month’s policy meeting pushed the dollar down toward 150 yen.”There’s no doubt the market’s direction is towards a weaker yen. If yen falls accelerate, the chance of a December rate hike will increase,” said Ota of Mizuho Research. “The government and the BOJ will likely act swiftly including through currency intervention.”($1 = 154.4400 yen) More

WASHINGTON (Reuters) -The Federal Reserve cut interest rates by a quarter of a percentage point on Thursday as its policymakers began taking stock of what could become a more complex economic landscape when President-elect Donald Trump takes office next year.Fed Chair Jerome Powell said the results of Tuesday’s presidential election, which paved the way for a U.S. chief executive who has pledged widespread deportation of immigrants, broad-based tariffs, and tax cuts, would have no “near-term” impact on U.S. monetary policy.Powell said the Fed will continue assessing data to determine the “pace and destination” of interest rates as officials reset currently tight monetary policy to account for inflation that has slowed markedly in the past year and is nearing the U.S. central bank’s 2% target.But as the new administration’s proposals take shape, the Fed chief said the central bank would begin estimating the impact on its twin goals of stable inflation and maximum employment.”It’s a process that takes some time,” said Powell, who spoke in a press conference following the Fed’s decision to reduce its benchmark overnight interest rate to the 4.50%-4.75% range. “It’s all of the policy changes that are happening. What’s the net effect? The overall effect on the economy at a given time? That’s a process … we go through all the time with every administration.”The first years of President Joe Biden’s administration, for example, saw passage of major infrastructure and other spending bills that added to growth but, many economists feel, also contributed to the eventual breakout of inflation that the Fed had to suppress with rapid rate hikes in 2022 and 2023.Inflation has since fallen and Fed policy rates are coming down as well, a process Powell said is still expected to lead over time to a more neutral rate of interest that neither stimulates nor restrains the economy.Yet the exact destination remains unknown, and may become even harder to pin down if fiscal and tax policies change as rapidly as Trump has pledged, particularly given the political tailwind of Republican control of the U.S. Senate and possibly the House of Representatives.Powell, who was appointed by Trump and then eventually clashed with him during the Republican president’s first term, will now oversee monetary policy during those first critical months of the new administration.Trump indicated over the summer, and a CNN report on Thursday reaffirmed, that he would let Powell continue as Fed chief until the end of his current four-year term in May of 2026 – and Powell said bluntly on Thursday that he would not resign if asked. The president, he said, had no authority under law to remove the head of the Fed, a position confirmed by the Senate, over a policy disagreement.”Not permitted under the law,” Powell said.’VERY GOOD PLACE’For now, at least, both inflation and interest rates are moving lower in line with a Fed outlook that sees price pressures continuing to ease amid ongoing economic growth and a job market the central bank says has “generally eased” but remains healthy.”The easy cuts have been made, and maybe December won’t be too contentious either,” said Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management, referring to the likelihood of another quarter-percentage-point rate cut at the Fed’s Dec. 17-18 meeting, its final one of the year. “Thereafter, I imagine the Fed is asking the same questions as investors – to what extent and when will the incoming Trump administration implement its campaign policy proposals?”Powell said for now the economic outlook was solid and the Fed hoped to keep it that way.”This further recalibration of our policy stance will help maintain the strength of the economy and the labor market, and will continue to enable further progress on inflation as we move toward a more neutral stance over time,” Powell said.”We think that the economy, and we think our policies, are both in a very good place, a very good place.”Treasury yields trimmed losses and the yield curve flattened after the release of the Fed’s unanimous policy decision. Futures markets continued to price in another quarter-percentage-point rate cut next month.The Fed’s policy statement noted that risks to the job market and inflation were “roughly in balance,” repeating language from the statement released after its Sept. 17-18 meeting. The new statement also slightly altered the reference to inflation, saying that price pressures had “made progress” towards the Fed’s objective, rather than the prior language that it had “made further progress.” The personal consumption expenditures price index excluding food and energy items, a key gauge of inflation, has changed little in the last three months, running at a roughly 2.6% annual rate as of September.Powell said that the language change was not meant to signal that inflation has been sticky. The Fed, he said, has always expected progress to be bumpy, and policymakers have gained confidence that inflation is on a sustainable path to the 2% goal. More