Dollar struggles but trade fears persist

HONG KONG, Mar 21 (AFP): 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.

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.