Dollar struggles, stocks up on dovish Fed but trade fears persist

22 March, 2019 12:00 AM printer

HONG KONG: The dollar struggled in Asia on Thursday after a surprisingly dovish Federal Reserve indicated it would not lift interest rates this year and sounded a note of caution on the economy.

While the prospect of lower borrowing costs provided support to equity markets, investors were spooked as Donald Trump dented hopes for a quick resolution to the China-US trade talks by warning tariffs would stay in place for some time after any agreement is reached, reports AFP.

After a much-anticipated meeting, the US central bank forecast that it would not raise rates this year — a shift from an earlier projection of two — and cut its annual growth outlook.

“It may be some time before the outlook for jobs and inflation calls clearly for a change in policy,” Fed boss Jerome Powell said after the meeting.

The announcement took markets by surprise, with most observers expecting it would tee up at least one rate hike this year, and fuelled concerns about the state of the economy.

The greenback sank against its major peers, while higher-yielding units were also well up. The South African rand piled on more than two percent, Mexico’s peso jumped more than one percent and the Australian dollar jumped one percent. And the yuan was at its highest level since July.

Most stock markets in Asia rose, with Shanghai 0.4 percent higher, while Singapore added 0.2 percent, Seoul climbed 0.4 percent and Manila jumped 1.2 percent. Sydney, Taipei, Bangkok and Jakarta also rose though Hong Kong reversed course in the afternoon to close 0.9 percent lower.

In early European trade, London was up 0.2 percent, Paris slipped 0.1 percent, while Frankfurt was down 0.3 percent.

However, there is some unease across trading floors after Trump’s remarks.  The president said that if a trade deal is reached between the world’s top two economies, US tariffs would remain in place “for a substantial period of time”.

“We have to make sure that if we do the deal with China… China lives by the deal,” he added.