By Ankur Banerjee

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.”

WASHINGTON – President Donald Trump on Sunday issued an executive order establishing a review council for the Federal Emergency Management Agency, just days after he floated shuttering the agency whose resources are strained following multiple weather-related disasters and which is burdened by past failures in handling massive storms.

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 CRITICISM

Trump 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 FUNDING

Funding 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.