Asian markets struggle after trade talks, Aussie dollar weakens

Elsewhere on currency markets the USA dollar fluctuated but was holding gains ahead of the annual Jackson Hole symposium of central bankers, where Fed boss Jerome Powell is due to speak later Friday.

Powell said in his Jackson Hole speech: "The economy is strong".

Where he stands on the pace of interest rate hikes will be scrutinised after minutes from the Fed's most recent policy meeting indicated the central bank would tighten monetary policy soon.

Just this week, a paper by Fed economists warned that even though there is uncertainty about estimates of the natural rate of unemployment, it's still better to set rates based on those than just wait for inflation. Late next month, the Fed is widely expected to resume raising rates.

Although Trump appointed Powell, he criticised the Fed chairman for not doing enough to support trade negotiations around the world by setting monetary policy to support the United States economy.

"While inflation has recently moved up near 2 percent, we have seen no clear sign of an acceleration above 2 percent, and there does not seem to be an elevated risk of overheating", Powell said.

Mr Powell's comments were not a direct response to Mr Trump's criticism that he is "not thrilled" with the Fed raising rates as he is trying to stimulate economic growth.

Most economists believe the Fed will raise interest rates again when it next meets to consider borrowing costs in September.

Powell's remarks about inflation were seen by some as a signal that the Fed has little need to push rates beyond the bank's perceived level of the neutral rate, or where the federal funds rate reaches an equilibrium where it neither stimulates nor suppresses economic growth.

That broke a tradition that the White House should refrain from attacks on the Fed because such criticism can shake the confidence of financial markets that the Fed is committed to keeping inflation under control without regard to political considerations. The economy is strong and the Fed must walk a tight line between not snuffing out growth and not allowing an overheated economy to produce runaway inflation. Most people who want jobs can find them. Policymakers' latest assessment of that rate was around 2.9 percent, roughly 1 percentage point above the current level of between 1.75 and 2.00 percent.

Some analysts have expressed concerns that if Fed policy drives the Dollar much higher, it could endanger financial stability in the emerging world in a manner that might eventually backfire on the US. The president has complained that the Fed's tightening of credit could threaten the continued strong growth he aims to achieve through the tax cuts enacted late a year ago, a pullback of regulations and a rewriting of trade deals to better serve the United States.

In his speech, Powell did not directly address what many analysts see as the most serious threat to the economy: The trade war that Trump has launched with America's main trading partners - a conflict that risks depressing USA and global economic growth the longer it goes on.

Powell's careful comments aren't likely to convince Trump, who insiders say is concerned that a rate-driven economic slowdown could hit right as he's gearing up for a 2020 re-election campaign.

To emphasize the Fed's attention to inflation, Powell borrowed a line that European Central Bank President Mario Draghi used in July 2012 to preserve the euro.

  • Eleanor Harrison