U.S. stock futures opened Wednesday’s session relatively steady as investors awaited the Federal Reserve’s decision on interest rates. Previous declines in the major indexes, along with the dollar’s slide to a one year low, clearly reflected caution in the market. Nvidia shares came under pressure following reports of weak demand in China, while Oracle gained support after news of its participation in an investment consortium aimed at ensuring the continued operation of TikTok in the United States.
Markets are currently pricing in a certain 25 basis point rate cut, with only a slim chance of a deeper 50 basis point move. Weak labor market data has been a key driver of these expectations, while persistently high inflation remains a challenge for the Fed. Attention is focused on Jerome Powell’s remarks and the updated “dot plot,” which could clarify the Fed’s outlook and how it plans to balance supporting growth with maintaining price stability.
In the U.K., inflation held steady at 3.8% in August, nearly double the Bank of England’s target. Although the reading was unchanged, the elevated level increases the likelihood of rates being kept on hold at Thursday’s meeting. Rising prices continue to pressure households, complicating the central bank’s policy decisions and making the balance between curbing inflation and supporting growth more difficult.
In commodities, gold pulled back 0.6% from record highs to $3,667 an ounce as markets awaited the Fed’s decision, while oil slipped slightly after sharp gains the previous day, fueled by concerns over disruptions to Russian supply following Ukrainian drone strikes on key export ports and refineries. These moves highlight the cautious tone dominating global markets ahead of clearer signals on the U.S. rate path.
Meanwhile, the U.S. dollar remains under pressure, though Capital Economics argues stability is the more likely outcome given that markets have already priced in most easing scenarios. The U.S. economy is still relatively stronger than its European and Asian counterparts, while booming investment in artificial intelligence adds further support to growth and the dollar. Interest rate differentials remain a key factor in favor of the greenback, though risks persist particularly the possibility of a deeper U.S. recession or increased political pressure on the Fed, both of which could weigh on the dollar against major currencies like the euro and yen.
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