Sterling Steady Near Multi-month Highs, BoE Caution Still Top of Mind

Source: Bloomberg

The number of Americans filing new applications for jobless benefits unexpectedly fell last week, but the unemployment rate likely remained high in December amid sluggish hiring.

Initial claims for state unemployment benefits dropped 10,000 to a seasonally adjusted 214,000 for the week ended December 20, the Labor Department said on Wednesday. Economists polled by Reuters had forecast 224,000 claims for the latest week. The report was published a day early because of the Christmas Day holiday.

Claims have been volatile in recent weeks amid challenges adjusting the data for seasonal fluctuations ahead of the holiday season. The labor market remains locked in what economists and policymakers describe as a "no hire, no fire" mode.

Though the economy remains resilient, with gross domestic product increasing at its fastest pace in two years in the third quarter, the labor market has almost stalled. Labor demand and supply have been impacted by import tariffs and an immigration crackdown, economists say.

The number of people receiving unemployment benefits after an initial week of aid, a proxy for hiring, increased 38,000 to a seasonally adjusted 1.923 million during the week ending December 13, the claims report showed.

The so-called continuing claims covered the period during which the government surveyed households for December's unemployment rate.

The elevated continued claims aligned with a survey from the Conference Board on Tuesday showing consumers' perceptions of the labor market deteriorated this month to levels last seen in early 2021. The unemployment rate increased to a four-year high of 4.6% in November, though part of the rise was because of technical factors related to the 43-day government shutdown.

The record-long shutdown prevented data collection for October's unemployment rate. The Federal Reserve this month cut its benchmark overnight interest rate by another 25 basis points to the 3.50%-to-3.75% range, but signaled borrowing costs were unlikely to fall in the near term as policymakers await clarity on the direction of the labor market and inflation.

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The new US National Security Strategy (NSS) repositions the superpower's role in the world. Hence, foreign policy will be mainly driven by considerations of "making America great again" (MAGA).

Changing course

The new NSS no longer presumes US world leadership and alliances based on values. It breaks with earlier post-Cold War foreign policy, upsetting those committed to its sovereigntist unipolar world.

Quietly released on Dec 4, it is certainly not an easily forgettable update of long-established positions, cloaked in obscure bureaucratic and diplomatic parlance.

Mainly drafted under the leadership of "neo-con" Secretary of State and National Security Adviser Marco Rubio, it is already seen as the most significant document of Trump 2.0.

It asserts, "The days of the United States propping up the entire world order like Atlas are over." Instead, foreign policy should now prioritise advancing US interests.

New priorities

The NSS implies the US will no longer be the world's policeman. Instead, it will exercise power selectively, prioritising transactional rather than strategic considerations.

It emphasises economic strength as key to national security, rebuilding industrial capacity, securing supply chains and ensuring the US never relies on others for critical materials.

Even if the Supreme Court overrules the president's tariffs, the US has already secured many concessions from governments fearful of their likely adverse impacts.

The NSS is ostensibly based on MAGA considerations involving immigration control, hemispheric dominance and cultural ethno-chauvinism.

Mainstream commentators complain it lacks the supposedly enlightened values underlying foreign policy in the US-dominated world order after World War II.

They complain the new NSS is narrow in focus, redefining interests and sharing power. Its stance and tone are said to be more 19th-century than 21st-century.

Apart from pragmatic imperatives, mixed messages may be due to unsatisfactory compromises among rival factions in Trump's administration.

MAGA foreign policy

Long-term observers see the NSS as unprecedented and blatantly ideological.

White supremacist ideology influences not only national cultural politics but also foreign policy. The NSS unapologetically promotes Judaeo-Christian chauvinism despite the constitutional separation of church from state.

MAGA's "America First" priority is evident throughout. Border security is crucial as immigration is deemed the primary national security concern.

For Samuel Huntington, immigration threatens the US by making it less WASP (White Anglo-Saxon Protestant).

The NSS blames social and economic breakdown on immigration. Inflows into the Western Hemisphere, not just the US, must be urgently stopped by all available means.

Ironically, the US has long been a nation of immigrants, with relatively more immigrants than any European country. Its non-white numbers are almost equal to whites.

Trump's neocolonial interpretation of the 1823 Monroe Doctrine emphasises the Americas as the new foreign policy priority.

Foreign rivals must not be allowed to acquire strategic assets, ports, mines or infrastructure in Latin America and the Caribbean, mainly to keep China out.

Trump's NSS prioritises the Western Hemisphere, with Asia second. Africa receives three paragraphs, primarily for its minerals.

Europe is downgraded to third due to its ostensible immigration-induced civilisational decline. Surprisingly, the NSS urges halting North Atlantic Treaty Organisation (Nato) expansion.

China a near peer

The NSS policy on China is widely viewed as unexpectedly restrained. China remains a priority but is no longer its primary antagonist; it is now a peer competitor.

Now, the US must rebalance its economic relationship with China based on mutually beneficial reciprocity, fairness and the resurgence of US manufacturing.

The US will continue to work with allies to limit China's growth and technological progress. However, China is allowed to develop green technologies due to US disinterest.

Meanwhile, US hawks have ensured a military "overmatch" for Taiwan. The NSS emphasises Taiwan's centrality to Indo-Pacific security and world chip production.

The NSS warns China would gain access to the Second Island Chain if it captured Taiwan, reshaping regional power and threatening vital US trade routes.

With allied support, the US military will seek to contain China within the First Island Chain. However, Taiwan fears US support will wane after TSMC chip production moves to the US.

The NSS expects the "Quad" of the US, Australia, Japan and India to enhance Indo-Pacific security. For Washington, only India can balance China in Asia and is hence crucial to contain China in the long term.

Regional reordering

The NSS also downgrades the Middle East (ME). Conditions that once made the region important have changed.

The ME's importance stemmed from its petroleum and Western guilt over Israel. Now, the US has become a significant oil and gas exporter.

Critically, the US strike on Iran in mid-2025 is believed to have set back Tehran's nuclear programme.

The ME seems unlikely to continue to drive US strategic planning as it has over the last half-century. For the US, the region is now expected to be a major investor.

As US foreign policy is redefined, the world worries. The ME has been downgraded as Latin America has become the new frontline region.

Much has happened in less than a year of Trump 2.0, with little clear or consistent pattern of continuity or change from his first term. But policies have also been quickly reversed or revised.

While the NSS is undoubtedly important and indicative, it would be presumptuous to think it will actually determine policy over the next three years or even in the very near future.

Jomo Kwame Sundaram is currently senior adviser at Khazanah Research Institute (KRI). A former economics professor, he was United Nations assistant secretary-general for economic development. He is a recipient of the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought.

K Kuhaneetha Bai studied at the University of Malaya and does policy research at Khazanah Research Institute.

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