HONG KONG, March 21 — The dollar struggled in Asia today 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.
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 per cent, Mexico’s peso jumped more than one per cent and the Australian dollar jumped one per cent. And the yuan was at its highest level since July.
Most stock markets in Asia rose, with Shanghai 0.4 per cent higher, while Singapore added 0.2 per cent, Seoul climbed 0.4 per cent and Manila jumped 1.2 per cent. Sydney, Taipei, Bangkok and Jakarta also rose though Hong Kong reversed course in the afternoon to close 0.9 per cent lower.
In early European trade, London was up 0.2 per cent, Paris slipped 0.1 per cent, while Frankfurt was down 0.3 per cent.
EU has ‘lost patience’
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.
The comments dented optimism the two sides would reach an agreement to end a standoff that has scythed global markets last year.
“This could be a major sticking point from the Chinese side,” said National Australia Bank’s Ray Attrill. “We can but hope it’s all part of the ‘Art of the Deal’, but in the meantime (it) means we can’t as yet fully price in a trade deal next month, or later, with supreme confidence.”
Traders are also casting a wary eye on the Brexit saga after Prime Minister Theresa May asked for a three-month extension to the March 29 deadline for leaving the EU as she struggled to prevent an economically painful no-deal divorce.
European Council President Donald Tusk said the EU could agree to the request but only if British MPs pass her withdrawal deal, which they have already rejected twice.
“The EU has clearly lost patience with Britain” said Jeffrey Halley, Senior Market Analyst, OANDA.
The bloc appears to be “taking matters into… (its) own hands, addressing parliament directly with a stark choice: sign off on the deal tout suite or risk being kicked out on 29 March; or take a multi-year extension, hopefully with a new referendum and/or government.”
The pound edged up against the dollar, supported mainly by the Fed announcement, but there are fears of a sharp sell-off in the event of a no-deal Brexit.
Key figures around 0820 GMT
Hong Kong – Hang Seng: DOWN 0.9 per cent at 29,071.56 (close)
Shanghai – Composite: UP 0.4 per cent at 3,101.46 (close)
Tokyo – Nikkei 225: Closed for a public holiday
London – FTSE 100: UP 0.2 per cent at 7,306.15
Pound/dollar: UP at US$1.3216 from US$1.3189 at 2050 GMT
Euro/pound: DOWN at 86.42 pence from 86.52 pence
Euro/dollar: UP at US$1.1425 from US$1.1412
Dollar/yen: DOWN at 110.45 yen from 110.70 yen
Oil – West Texas Intermediate: DOWN eight cents at US$60.15 per barrel (new contract)
Oil – Brent Crude: UP eight cents at US$68.58 per barrel
New York – DOW: DOWN 0.6 per cent at 25,745.67 (close)
Source: The Malay Mail Online