By Phil Stewart

MANAMA (Reuters) -Defense Secretary Lloyd Austin on Tuesday said the United States was leading a multinational operation to safeguard commerce in the Red Sea as attacks by Iran-backed Yemeni Houthi militants forced more major shipping companies to reroute.

The Houthis have stepped up the missile and drone attacks they began last month against international vessels sailing through the Red Sea, in response to Israel’s assault on the Gaza Strip.

The attacks this week forced oil major BP and a slew of freight firms including Maersk to divert shipments normally made through the Suez Canal around the Cape of Good Hope, adding days to journey times and incurring higher costs.

Israel’s 10-week-old war with Hamas, the Palestinian group that controls Gaza, has drawn in the United States and its allies on the side of Israel, and Iran and its Arab proxy forces on the side of Hamas, risking a wider regional conflict.

Austin, who is on a trip to Bahrain, home to the U.S. Navy’s headquarters in the Middle East, said the United Kingdom, Bahrain, Canada, France, Italy, Netherlands, Norway, Seychelles and Spain were among nations involved in the Red Sea security operation.

The group will conduct joint patrols in the southern Red Sea and the Gulf of Aden.

“This is an international challenge that demands collective action,” Austin said in a statement, announcing the initiative as “Operation Prosperity Guardian”.

In a virtual meeting with ministers from more than 40 nations, Austin called on other countries to contribute as he condemned “reckless Houthi actions.”

Austin’s announcement however leaves many questions unanswered, including how many other countries are willing to do what mostly U.S. warships have done in recent days — shoot down Houthi missiles and drones, and rush to the aid of commercial ships under attack.

France later said it would join the effort to stop Houthi attacks.

Shipping companies continued to reroute on Tuesday despite Austin’s announcement. Denmark’s Maersk, which had paused Red Sea shipping, said it would sail its ships around Africa until further notice.

“We have faith that a solution enabling a return to using the Suez Canal and transiting through the Red Sea and Gulf of Aden will be introduced in the near future, but at this time it remains difficult to determine exactly when this will be,” it said in a statement.

Many other ships were still plying the waterway. Several ships underway have armed guards on board, LSEG data showed.

Industry sources said the impact on global trade would depend on how long the crisis persists, but insurance premiums and longer routes would be immediate burdens.

ATTACKS PERSIST, SHIPS REROUTE

The Houthis, who control large areas of impoverished Yemen, have threatened to target all ships heading to Israel, regardless of their nationality, and warned international shipping companies against dealing with Israeli ports. They have also fired missiles at Israel more than 1,000 miles away.

The group said on Tuesday the U.S.-led security initiative would not deter them.

British maritime security firm Ambrey said on Tuesday it received information of a potential boarding attempt 17 miles west of Yemen’s Aden port city, adding that the attack was unsuccessful and all crew were safe.

The United Kingdom Maritime Trade Operations said in an advisory it had received a report of an incident 80 nautical miles northeast of Djibouti, at the mouth of the Red Sea.

The U.S. Navy already had a Red Sea task force that had bolstered its presence in the critical waterway, and it is unclear how many countries will send additional ships or patrol aircraft following the creation of the new maritime operation.

The leadership of the new U.S.-led operation will also fall under existing command structures, officials say.

Many key Arab allies of the United States have so far declined to join.

The Houthis on Monday claimed a drone attack on two cargo vessels in the region. The Houthis have said that they were prepared to confront any coalition formed by the United States.

About 12% of world shipping traffic normally transits via the Suez Canal, the shortest shipping route between Europe and Asia, passing then as well into the Red Sea waters off Yemen.

Oil major BP’s decision to temporarily pause all transit through the Red Sea, and oil tanker group Frontline saying its vessels would avoid passage through the waterway, showed the crisis was broadening to include energy shipments. Crude oil prices rose on those concerns on Monday.

Western countries back Israel’s fight against Hamas after the group killed 1,200 Israelis in an Oct. 7 attack. Israel’s military response, a heavy bombardment and invasion of Gaza, has killed more than 19,000 Palestinians.

During a visit to Israel on Monday, Austin squarely blamed Iran for the Houthi attacks.

“Iran’s support for Houthi attacks on commercial vessels must stop,” he said.

In addition to the Houthi attacks, Iran’s ally Hezbollah in Lebanon has fired rockets across the frontier with Israel. Israel has launched air strikes in response in the worst violence at the frontier since a 2006 Israel-Hezbollah war.

At a news conference in Tel Aviv, Austin said: “As we are driving to stabilize the region, Iran is raising tensions by continuing to support terrorist groups and militias.”

(Reporting by Phil Stewart, Mohammed Ghobari, Yuka Obayashi, Lisa Barrington, Reuters bureaux, Dubai newsroomWriting by John Davison, Alexander Cornwell, Elisa Martinuzzi; Editing by Hugh Lawson)

By Rae Wee and Alun John

SINGAPORE (Reuters) -The yen tumbled on Tuesday after the Bank of Japan (BOJ) maintained its ultra-loose monetary policy, as expected, and more surprisingly did not signal a change was approaching, while the dollar drifted at the low end of its recent range.

The dollar and euro both climbed 1% on the yen, each set for its biggest daily gain since end October, with the greenback reaching 144.27 yen, and the common currency 157.68.

While the outcome was within market expectations, some investors were on the lookout for signs on whether the dovish central bank might signal an eventual move away from negative interest rates.

“Before the meeting, there were expectations for policy changes, including wording amendments in the statement,” said SMBC’s chief FX strategist, Hirofumi Suzuki.

Still, he said: “The movement of a weaker (yen) is unlikely to become a trend, partly because expectations remain for a policy revision for January-March next year.”

BOJ governor Kazuo Ueda BOJ told a press conference: “The prospects for (sustainably achieving our inflation target) are gradually heightening. But in terms of whether the threshold would be met, we’d prefer to look at more data.”

In the broader market, the risk-sensitive Australian and New Zealand dollars sat around their highest in nearly five months, amid buoyant sentiment on the prospect that the U.S. Federal Reserve could begin lowering rates next year.

The Aussie rose 0.23% to $0.6724, having peaked at $0.6736 in the previous session, its highest since July 31.

The kiwi rose 0.35% to $0.6233.

Minutes from the Reserve Bank of Australia’s December policy meeting showed on Tuesday that the bank considered hiking rates, but decided there were enough encouraging signs on inflation to pause for more data.

The pound rose 0.2% to 1.2674 and the euro rose 0.1% to $1.0936.

That left the U.S. dollar index little changed at 102.54, above last week’s four-week low of 101.75 but still down over 4% since early October, as the Fed, at its meeting last week, gave succour to investors expecting rate cuts in 2024.

While some Fed officials have pushed back against market expectations of how soon the Federal Open Market Committee (FOMC) could cut rates, those comments have done little to sway market pricing and stem the greenback’s decline.

Chicago Fed President Austan Goolsbee on Monday said the Fed is not pre-committing to cutting rates soon or swiftly, and the jump in market expectations that it will do so was at odds with how the U.S. central bank functions.

“It may take (the) PCE inflation or comments from FOMC Chair (Jerome) Powell to encourage market participants to delay their expectations for the start of the rate cut cycle,” said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia.

A reading on the core Personal Consumption Expenditures (PCE) price index – the Fed’s preferred measure of underlying inflation – is due this week, and may provide clarity on whether inflation has slowed enough for the Fed to begin easing policy next year.

(Reporting by Rae Wee in Singapore and Alun John in London; Editing by Christopher Cushing and Bernadette Baum)

By Phil Stewart

MANAMA (Reuters) -U.S. Defense Secretary Lloyd Austin on Tuesday announced the creation of a multinational operation to safeguard commerce in the Red Sea following a series of missile and drone attacks by Yemen’s Iran-aligned Houthis.

Austin, who is on a trip to Bahrain, home to the U.S. Navy’s headquarters in the Middle East, said participating countries include the United Kingdom, Bahrain, Canada, France, Italy, Netherlands, Norway, Seychelles and Spain.

The group will conduct joint patrols in the southern Red Sea and the Gulf of Aden.

“This is an international challenge that demands collective action. Therefore today I am announcing the establishment of Operation Prosperity Guardian, an important new multinational security initiative,” Austin said in a statement early on Tuesday.

In a virtual meeting with ministers from more than 40 nations, Austin called on other countries to contribute as he condemned “reckless Houthi actions.”

“We’re all here because many countries can directly contribute to our common efforts to keep strategic waterways safe,” Austin said, according to prepared remarks.

Still, the announcement leaves many questions unanswered, including whether any additional countries are willing to do what mostly U.S. warships have done in recent days — shoot down Houthi missiles and drones, and rush to the aid of commercial ships under attack.

The U.S. Navy already had a Red Sea task force that had bolstered its presence in the critical waterway, and it is unclear how many countries will send additional ships or patrol aircraft following the creation of Operation Prosperity Guardian.

The Houthis have waded into the Israel-Hamas conflict by attacking vessels in vital shipping lanes and even firing drones and missiles at Israel more than 1,000 miles from their seat of power in the Yemeni capital of Sanaa.

Before Austin’s announcement, the Houthi group said it launched a drone attack on Monday on two cargo vessels in the region.

British maritime security firm Ambrey said on Tuesday it received information of a potential boarding attempt 17 miles west of Yemen’s Aden port city, adding that the attack was unsuccessful and all crew were safe.

The Houthis have threatened to target all ships heading to Israel, regardless of their nationality, and warned international shipping companies against dealing with Israeli ports.

About 12% of world shipping traffic normally transits via the Suez Canal, the shortest shipping route between Europe and Asia, passing then as well into the Red Sea waters off Yemen.

But the unrest has disrupted maritime trade, as freight firms reroute around Africa instead, adding costs and delays which are expected to be compounded over coming weeks.

Combined, the companies that have diverted vessels “control around half of the global container shipping market,” ABN Amro analyst Albert Jan Swart told Reuters.

Oil major BP temporarily paused all transits through the Red Sea and oil tanker group Frontline said on Monday its vessels would avoid passage through the waterway, signs the crisis was broadening to include energy shipments. Crude oil prices rose on those concerns on Monday.

During a visit to Israel on Monday, Austin squarely blamed Iran for the Houthi attacks.

“Iran’s support for Houthi attacks on commercial vessels must stop,” he said.

At a news conference in Tel Aviv, Austin said: “As we are driving to stabilize the region, Iran is raising tensions by continuing to support terrorist groups and militias.”

(Reporting by Phil Stewart; Editing by Hugh Lawson)

By Rae Wee and Summer Zhen

SINGAPORE (Reuters) -The yen fell broadly on Tuesday after the Bank of Japan (BOJ) kept its ultra-loose monetary policy unchanged and maintained its forward guidance in a closely awaited decision at the conclusion of its two-day policy meeting.

The yen slid more than 0.6% against the U.S. dollar to a session-low of 143.78 following the decision, though it later pared some of those losses. The yen last stood at 143.46 per dollar.

Against the euro, the yen likewise weakened to a one-week low of 157, and was last roughly 0.5% lower at 156.72 per euro.

While the outcome was in line with market expectations, some investors were on the lookout for signs on whether the dovish central bank might signal an eventual move away from negative interest rates.

“Before the meeting, there were expectations for policy changes, including wording amendments in the statement,” said SMBC’s chief FX strategist, Hirofumi Suzuki.

“The movement of a weaker (yen) is unlikely to become a trend, partly because expectations remain for a policy revision for January-March next year.”

Market focus now turns to Governor Kazuo Ueda’s press conference later in the day for further guidance on the bank’s policy outlook.

“The BOJ will not hesitate to take additional easing steps if necessary,” the central bank said in a statement, adding that uncertainty regarding the economy was extremely high.

“In an environment where the combined value of the government’s balance sheet alongside other reporting bodies puts it (Japan) at the top of the global gross government debt to GDP tables, it is almost physically impossible to foresee a scenario unfolding whereby the BOJ would not keep monetary policy loose in order to allow the government favourable debt servicing environs,” said Marcel von Pfyffer, CIO of Arminius Capital.

FED PUSHBACK?

In the broader market, the greenback languished near roughly five-month lows against the risk-sensitive Australian and New Zealand dollars, as market sentiment stayed buoyant on the prospect that the U.S. Federal Reserve could begin lowering rates next year.

The Aussie edged 0.19% higher to $0.6719, having peaked at $0.6736 in the previous session, its highest since July 31.

The kiwi likewise rose 0.25% to $0.62275, standing not too far from Monday’s top of $0.6250.

Minutes from the Reserve Bank of Australia’s December policy meeting out on Tuesday showed the central bank considered hiking interest rates, but decided there were enough encouraging signs on inflation to pause for more data.

Elsewhere, the U.S. dollar index was little changed at 102.53.

While some Fed officials have pushed back against market expectations of how soon the Federal Open Market Committee (FOMC) could cut rates, those comments have done little to sway market pricing and stem the greenback’s decline.

Chicago Fed President Austan Goolsbee on Monday said the Fed is not pre-committing to cutting rates soon and swiftly, and the jump in market expectations that it will do so is at odds with how the U.S. central bank functions.

“It may take (the) PCE inflation or comments from FOMC Chair (Jerome) Powell to encourage market participants to delay their expectations for the start of the rate cut cycle,” said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia (CBA).

A reading on the core Personal Consumption Expenditures (PCE) price index – the Fed’s preferred measure of underlying inflation – is due this week, providing further clarity on whether inflation has slowed sufficiently for the Fed to begin easing its monetary policy next year.

Sterling rose 0.08% to $1.2657, while the euro gained 0.04% to $1.09265.

The two currencies, however, remain vulnerable to a dislocation in oil and gas markets, according to CBA’s Capurso, given their increasing dependence on energy from the Middle East.

Attacks by Yemen’s Iran-aligned Houthi militants on ships in the Red Sea disrupted maritime trade and forced companies to reroute vessels, sending oil prices higher as investors worried about disruption to trade as well as supply costs.

“Middle East oil and gas supplies may be put at risk,” said Capurso. “That’s why the euro and sterling are most at risk for big falls if these conflicts get worse or spread.”

(Reporting by Rae Wee; Editing by Christopher Cushing)

By Marius Zaharia

HONG KONG (Reuters) – China’s disappointing post-COVID recovery has raised significant doubts about the foundations of its decades of stunning growth and presented Beijing with a tough choice for 2024 and beyond: take on more debt or grow less.

The expectations were that once China ditched its draconian COVID rules, consumers would burst back into malls, foreign investment would resume, factories would rev up and land auctions and home sales stabilise.

Instead, Chinese shoppers are saving for rainy days, foreign firms pulled money out, manufacturers face waning demand from the West, local government finances wobbled, and property developers defaulted.

The dashed expectations have partly vindicated those who always doubted China’s growth model, with some economists even drawing parallels with Japan’s bubble before its “lost decades” of stagnation starting in the 1990s.

China sceptics argue Beijing failed to shift the economy from construction-led development to consumption-driven growth a decade ago, when it should have done so. Since then, debt has outpaced the economy, reaching levels that local governments and real estate firms now struggle to service.

Policymakers vowed this year to boost consumption, and reduce the economy’s reliance on property. Beijing is guiding banks to lend more to high-end manufacturing, away from real estate.

But a concrete long-term roadmap for cleaning up debt and restructuring the economy remains elusive.

Whatever choices China makes, it will have to account for an ageing and shrinking population, and a difficult geopolitical environment as the West grows wary of doing business with the world’s No.2 economy.

WHY IT MATTERS

China likely grew 5%-or-so in 2023, outrunning the global economy. However, beneath that headline is the fact China invests more than 40% of its output – twice as much as the United States – suggesting a significant portion of that is unproductive.

That means many Chinese don’t feel that growth. Youth unemployment topped 21% in June, the last set of figures before China controversially stopped reporting.

University graduates who studied for advanced-economy jobs are now taking up low-skilled positions to make ends meet while others have seen their wages cut.

In an economy where 70% of household wealth is parked in property, home owners are feeling poorer. Even in one of the few bright spots of the economy, the electric vehicle sector, a price war is causing pain downstream for suppliers and workers.

The national pessimism could present President Xi Jinping with social stability risks, analysts say. If China does slip into a Japan-style decline, it would do so before ever achieving the kind of development Japan did.

That would be felt widely as most global industries depend significantly on suppliers in China. Africa and Latin America count on China buying their commodities and financing their industrialisation.

WHAT IT MEANS FOR 2024

China’s problems give it little time before it has to make some tough choices.

Policymakers are keen to change the structure of the economy, but reform has always been difficult in China.

A push to boost welfare for hundreds of millions of rural migrant workers, who could – by some estimates – add 1.7% of GDP in household consumption if they had similar access to public services as urban residents, is already stalling due to worries about social stability and costs.

China’s efforts to resolve its property and debt problems come up against similar concerns.

Who pays for their bad investments? Banks, state-owned firms, the central government, businesses or households?

Any of those options could mean weaker future growth, economists say.

For now, however, China appears hesitant to make choices that would sacrifice growth for reform.

Government advisers are calling for a growth target of around 5% for next year.

While that’s in line with its 2023 target, it won’t have the same flattering year-on-year comparison with the slump caused by the 2022 lockdowns.

Such a target might push it into more debt – the type of fiscal looseness that prompted Moody’s to cut China’s credit rating outlook to negative this month, pushing Chinese stocks to five-year lows.

Where that money gets spent will tell us if Beijing is changing its approach or doubling down a growth model many fear has run its course.

(Writing by Marius Zaharia. Editing by Sam Holmes)

By Rae Wee

SINGAPORE (Reuters) -The yen fell broadly on Tuesday after the Bank of Japan (BOJ) kept its ultra-loose monetary policy unchanged and maintained its forward guidance in a closely awaited decision.

The yen slid more than 0.6% against the U.S. dollar to a session-low of 143.75 following the decision. Against the euro, the yen similarly fell 0.6% to 156.88.

The decision was in line with market expectations but some investors were on the lookout for signs on whether the dovish central bank might signal an eventual move away from negative interest rates.

“The BOJ will continue to maintain the stability of financing, mainly of firms, and financial markets, and will not hesitate to take additional easing measures if necessary,” the BOJ said in a statement at the conclusion of its two-day monetary policy meeting.

Market focus now turns to Governor Kazuo Ueda’s press conference later in the day for further guidance on the bank’s policy outlook.

“Before the meeting, there were expectations for policy changes, including wording amendments in the statement,” said SMBC’s chief FX strategist, Hirofumi Suzuki.

“The movement of a weaker (yen) is unlikely to become a trend, partly because expectations remain for a policy revision for January-March next year.

“Governor Ueda’s stance on monetary policy normalisation at the press conference is drawing attention… Ueda is expected to say that he is paying attention to wage developments, including next spring’s wage negotiations, so he will remain cautious.”

Elsewhere, the greenback languished near roughly five-month lows against the risk-sensitive Australian and New Zealand dollars, as market sentiment stayed buoyant on the prospect that the U.S. Federal Reserve could begin easing next year.

The Aussie edged 0.28% higher to $0.6725, having peaked at $0.6736 in the previous session, its highest since July 31.

The kiwi likewise rose 0.22% to $0.62255, standing not too far from Monday’s top of $0.6250.

The U.S. dollar index was little changed at 102.50.

While some Fed officials have pushed back against market expectations of how soon the Federal Open Market Committee (FOMC) could cut rates, those comments have done little to sway market pricing and stem the greenback’s decline.

Chicago Fed President Austan Goolsbee on Monday said the Fed is not pre-committing to cutting rates soon and swiftly, and the jump in market expectations that it will do so is at odds with how the U.S. central bank functions.

“It may take (the) PCE inflation or comments from FOMC Chair (Jerome) Powell to encourage market participants to delay their expectations for the start of the rate cut cycle,” said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia (CBA).

A reading on the core Personal Consumption Expenditures (PCE) price index – the Fed’s preferred measure of underlying inflation – is due this week, providing further clarity on whether inflation has slowed sufficiently for the Fed to begin easing its monetary policy next year.

Sterling rose 0.03% to $1.2651, while the euro slipped 0.04% to $1.0919.

CBA’s Capurso said those two currencies are the most vulnerable to a dislocation in oil and gas markets given their increasing dependence on energy from the Middle East, after the Yemeni Houthi militant group attacked ships in the Red Sea.

Those attacks led to a spike in oil prices as investors worried about disruption to trade as well as supply costs.

“Middle East oil and gas supplies may be put at risk,” said Capurso. “That’s why the euro and sterling are most at risk for big falls if these conflicts get worse or spread.”

(Reporting by Rae Wee; Editing by Christopher Cushing)

Crypto Lobby Groups Raise $78M to Influence 2024 Election

It promises to be one of the most consequential elections in the recent past, with President Joe Biden pushing hard to be reelected even as Donald Trump wages one of the fiercest campaigns in the recent past. As the campaigns heat up, the focus will be on the markets, which are expected to be on toes, as has always been the case over the past years. Lobbying is already heating up with the cryptocurrency industry leading the onslaught as it seeks to push for the election of favorable candidates to enact legislation that favors the sector.

Crypto Lobbying War Chest

Political action committees (PAC) funded by cryptocurrency leaders have built a campaign war chest of $78 million that they plan to use to influence the 2024 election. The action committees led by Fairshake, Protect Progress and Defend American Jobs plan to use a good chunk of money to support pro-crypto candidates.

The three super committees can potentially raise more money as the cryptocurrency industry seeks to safeguard its interest at one of the most pivotal moments. Fairshake has been one of the most aggressive, having received donations from more than 20 wealthy and influential players in the crypto scene.

Andreessen Horowitz, one of the biggest crypto proponents, has been one of the biggest donors donating money to finance crypto-friendly politicians. Crypto exchange giant Coinbase and venture capital executive Fred Wilson have also aggressively donated money to crypto funding campaigns.

Tech executives Cameron and Tyler Winklevoss and Ripple have also joined the bandwagon of raising funds to support crypto-friendly politicians. However, the industry lost one of its biggest spenders, former crypto king Sam Bankman Fried, who is in jail, having spent more than $36 million during the midterm elections.

Clamping Regulatory Pressure

The sector has come under immense pressure in recent months amid soaring regulatory pressure and scrutiny from the US Securities Exchange. Coinbase and Binance are cryptocurrency exchanges targeted over how they handle people’s money and sell cryptos. Ripple is another cryptocurrency that has been at loggerheads with the SEC over allegations it sold XRP tokens as securities.

Donations for crypto-friendly campaigns have been growing as the investors push to support like-minded candidates to make for friendly legislation that would fuel growth and accelerate innovation in the sector. In addition, the investors will oppose candidates who plan to kill America’s advanced technologies, including blockchain and cryptocurrency.

Nevertheless, the candidates that the committees will back next year are still unclear. Currently, most committees are spending millions of dollars on television advertisements as they support a select group of lawmakers. Fair shake super PAC has spent close to $1 million on ads.

The push to support crypto-friendly politicians comes as the overall cryptocurrency market returns after being under pressure for the better part of the year. Renewed hope of the US SEC approving a Bitcoin exchange-traded fund has fuelled a buying spree in the crypto market. Bitcoin has already powered and found support above the $40,000 a coin level,  on hopes of a Bitcoin ETF that would attract institutional investors into the sector.

By Terje Solsvik

OSLO (Reuters) -A volcano erupted late on Monday in southwest Iceland, spewing lava and smoke across a wide area after weeks of intense earthquake activity, the country’s Meteorological Office said, threatening a nearby town.

Fearing a significant eruption on the Reykjanes peninsula, authorities last month evacuated the nearly 4,000 inhabitants of the fishing town of Grindavik and closed the nearby Blue Lagoon geothermal spa.

“Warning: Eruption has started north of Grindavik by Hagafell,” the Met Office said on its website, noting that the eruption began only a few kilometres from the town and cracks in the ground stretched toward the village located about 40 km (25 miles) south-west of Iceland’s capital city Reykjavik.

Reykjavik’s nearby Keflavik International Airport remained open, albeit with numerous delays listed for both arrivals and departures.

Images and livestreams of the eruption shown by Reuters and others showed molten rock spewing spectacularly from fissures in the ground, their bright-yellow and orange colours set in sharp contrast against the dark night sky.

“Seismic activity together with measurements from GPS devices indicate that the magma is moving to the southwest and the eruption may continue in the direction of Grindavik,” the Met Office said.

The crack in the earth’s surface was around 3.5 km long and had grown rapidly, it added.

Some 100 to 200 cubic metres (3,530 to 7,060 cubic feet) of lava emerged per second, several times more than in previous eruptions in the area, the Met Office said.

Local police said they had raised their alert level as a result of the outbreak and the country’s civil defence warned the public not to approach the area while emergency personnel assessed the situation.

Located between the Eurasian and the North American tectonic plates, among the largest on the planet, Iceland is a seismic and volcanic hot spot as the two plates move in opposite directions.

But eruptions are still hard to predict. In mid-November, Grindavik inhabitants were whisked from their homes in the middle of the night as the ground shook, roads cracked and buildings suffered structural damage.

Seismologists believed at the time an eruption was imminent, but the geological activity later eased.

The Reykjanes peninsula in recent years saw several eruptions in unpopulated areas.

In March 2021, lava fountains erupted from a fissure in the ground measuring between 500 to 750 metres (1,640 to 2,460 feet) long in the region’s Fagradalsfjall volcanic system.

Volcanic activity in the area continued for six months that year, prompting thousands of Icelanders and tourists to visit the scene. In August 2022, a three-week eruption happened in the same area, followed by another in July of this year.

(Reporting by Terje Solsvik in Oslo and Chandni Shah in Bengaluru; Editing by Leslie Adler, Sandra Maler and Jamie Freed)

By Phil Stewart

MANAMA (Reuters) – U.S. Defense Secretary Lloyd Austin on Tuesday announced the creation of a multinational operation to safeguard commerce in the Red Sea following a series of missile and drone attacks by Yemen’s Iran-aligned Houthis.

Austin, who is on a trip to Bahrain, home to the U.S. Navy’s headquarters in the Middle East, said participating countries include the United Kingdom, Bahrain, Canada, France, Italy, Netherlands, Norway, Seychelles and Spain.

He said they would conduct joint patrols in the southern Red Sea and the Gulf of Aden.

“This is an international challenge that demands collective action. Therefore today I am announcing the establishment of Operation Prosperity Guardian, an important new multinational security initiative,” Austin said in a statement early on Tuesday.

Austin’s statement leaves many questions unanswered, including whether those countries are willing to do what U.S. warships have done in recent days — shoot down Houthi missiles and drones, and rush to the aid of commercial ships under attack.

The Houthis have waded into the Israel-Hamas conflict by attacking vessels in vital shipping lanes and even firing drones and missiles at Israel more than 1,000 miles from their seat of power in the Yemeni capital of Sanaa.

Just hours before Austin’s announcement, the Houthi group said it launched a drone attack on two cargo vessels in the region.

The Houthis have threatened to target all ships heading to Israel, regardless of their nationality, and warned international shipping companies against dealing with Israeli ports.

About 15% of world shipping traffic normally transits via the Suez Canal, the shortest shipping route between Europe and Asia, passing then as well into the Red Sea waters off Yemen.

But the unrest has disrupted maritime trade, as freight firms reroute around Africa instead, adding costs and delays which are expected to be compounded over coming weeks.

Combined, the companies that have diverted vessels “control around half of the global container shipping market,” ABN Amro analyst Albert Jan Swart told Reuters.

Oil major BP temporarily paused all transits through the Red Sea and oil tanker group Frontline said on Monday its vessels would avoid passage through the waterway, signs the crisis was broadening to include energy shipments. Crude oil prices rose on those concerns on Monday.

During a visit to Israel on Monday, Austin squarely blamed Iran for the Houthi attacks.

“Iran’s support for Houthi attacks on commercial vessels must stop,” he said.

At a news conference in Tel Aviv, Austin said: “As we are driving to stabilize the region, Iran is raising tensions by continuing to support terrorist groups and militias.”

(Reporting by Phil Stewart; ed)

By Rae Wee

SINGAPORE (Reuters) – The yen rose broadly on Tuesday ahead of a policy decision from the Bank of Japan (BOJ) later in the day which some traders hope will prove crucial in determining if and when the central bank will move away from negative interest rates.

Expectations are for the BOJ to maintain its ultra-loose monetary policy at the conclusion of its two-day meeting.

Still, investors will be parsing the outcome for hints as to how soon the BOJ could end a policy that is an outlier among major economies, particularly as comments from Governor Kazuo Ueda this month stoked speculation of an imminent policy shift.

Against the U.S. dollar, the yen rose more than 0.3% to 142.31, and stood not too far from a four-month high of 140.95 hit last week.

The Japanese currency has risen more than 6% since it touched a year low of 151.92 in November, in part due to a broadly weaker dollar and expectations that Japan’s ultra-low rates environment could be nearing an end.

The euro fell 0.26% to 155.67 yen, while overnight volatility in the yen was last at 29.655%, after having jumped to its highest since July on Monday.

“While steady BOJ policy may be on the cards for this week, the meeting may still be instrumental,” said Jane Foley, senior FX strategist at Rabobank.

“In recent months, the commentary from some BOJ officials suggests a cautious, but tangible, increase in confidence that the conditions that would sustain a virtuous cycle of wage inflation, increased consumer demand and profitability are building.

“That said, it is also very clear from the remarks of BOJ officials that the central bank is in no rush to remove stimulus.”

Elsewhere, the greenback languished near roughly five-month lows against the Australian and New Zealand dollars, as the risk-sensitive currencies got a leg up on the prospect that the U.S. Federal Reserve could begin easing interest rates as soon as early next year.

The Aussie edged 0.02% higher to $0.6708, having peaked at $0.6736 in the previous session, its highest since July 31.

The kiwi likewise rose 0.1% to $0.6218, standing not too far from Monday’s top of $0.6250.

While some Fed officials have pushed back against market expectations of how soon the Federal Open Market Committee (FOMC) could cut rates, those comments have done little to sway market pricing and stem the greenback’s decline.

Chicago Fed President Austan Goolsbee on Monday said the Fed is not pre-committing to cutting rates soon and swiftly, and the jump in market expectations that it will do so is at odds with how the U.S. central bank functions.

“It may take (the) PCE inflation or comments from FOMC Chair (Jerome) Powell to encourage market participants to delay their expectations for the start of the rate cut cycle,” said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia (CBA).

A reading on the core Personal Consumption Expenditures (PCE) price index – the Fed’s preferred measure of underlying inflation – is due this week, providing further clarity on whether inflation has slowed sufficiently for the Fed to begin easing its monetary policy next year.

Sterling rose 0.07% to $1.2656, while the euro slipped 0.01% to $1.0921.

CBA’s Capurso said those two currencies are the most vulnerable to a dislocation in oil and gas markets given their increasing dependence on energy from the Middle East, after the Yemeni Houthi militant group attacked ships in the Red Sea.

Those attacks led to a spike in oil prices as investors worried about disruption to trade as well as supply costs.

“Middle East oil and gas supplies may be put at risk,” said Capurso. “That’s why the euro and sterling are most at risk for big falls if these conflicts get worse or spread.”

(Reporting by Rae Wee; Editing by Christopher Cushing)