LONDON (Reuters) - Financial markets focused on Wednesday on what is widely expected to be the third rise in U.S. interest rates since the financial crisis, while there was some relief in commodity markets as oil pulled out of a six-day dive.
The looming Fed decision halted the dollar’s rise after a near 3 percent gain in recent weeks. Investors now betting on at least three hikes from the U.S. central bank this year.
Wall Street followed Europe and Asia’s lead and opened marginally higher while U.S. bond yields drifted below 2.6 percent to leave analysts wondering what signals Fed chief Janet Yellen would send later in the day.
“We are estimating three Fed rates hikes this year, we have seen some talk that they might be a bit behind the curve and four might be on the table but we don’t think that is the case,” Kully Samra, UK managing director at Charles Schwab, said.
New economic projections from the Fed, including its ‘dot plot’ showing what policymakers expect to happen with rates, and Yellen’s post-meeting press conference which start at 2.30 p.m EDT (1830 GMT) will all be key, Samra added.
Oil was the other main market mover, pulling out of a six-day slide that had seen Brent crude drop by more than 10 percent from $56.50 a barrel to the cusp of $50.
It was last up 1.4 percent at $51.64 a barrel with U.S. WTI back up to almost $49. Those moves helped boost European shares as basic resource stocks rallied.
The focus in Europe was on Dutch elections where anti-EU firebrand candidate Geert Wilders is providing the latest test of anti-establishment and anti-EU sentiment after Brexit. It also comes ahead of votes later this year in France and Germany, the two biggest economies in the euro zone.
The euro edged up 0.2 percent to $1.0624 but remained below Monday’s more than 1 month high of $1.0714, while euro zone government bond yields dipped as investors opted for caution over valour.
The latest Dutch opinion polls put the centre-right VVD party of Prime Minister Mark Rutte ahead of Wilders’ PVV (Party for Freedom) by 3 percentage points.
“The repercussions for France are the key aspect of this election, and if we see that the populists are keeping their momentum that will be reflected in French government bonds,” DZ bank strategist Christian Lenk said.
Attention was also turning to Friday’s G20 meeting in the German spa town of Baden-Baden, the first attended by U.S. President Donald Trump’s economic team.
Sources told Reuters hosts Germany will press G20 members to sign off on a set of principles including free trade at the gathering, in what the U.S. administration may perceive as a challenge to its more protectionist stance.
In the United States, Fed fund futures are pricing in a more than a 90 percent chance of a rise in rates later.
Those expectations have been built on a run of robust U.S. data, especially strong jobs figures, but not everything in the economy is going gangbusters.
Retail sales for February released ahead of the Wall Street open showed the smallest increase in six months as households cut back on motor vehicle purchases and discretionary spending, although if the Fed needed any further convincing to push up rates consumer prices posted the biggest year-on-year increase in nearly five years.
Back in Europe, sterling fell back below $1.22, halving its day’s gains, after data for the three months to January showed a deeper-than-expected fall in the pace of wages growth, the latest sign the UK’s previously robust economy is stuttering.
London’s main FTSE stock exchange index, whose internationally-focused stocks tend to gain when sterling weakens, turned higher after the data to climb as much as 0.3 percent before stalling again.
The dollar pullback ahead of the Fed decision also allowed emerging equities and currencies to post modest gains with the Indian rupee outperforming for the second day as it raced to a new 16-month high.
The Bank of Japan also began a two-day monetary policy meeting on Wednesday. It is expected to hold its policy steady and stress that inflation is nowhere near levels that justify talk of withdrawing its massive stimulus.
Having posted its second-biggest daily gain this year in the previous session, MSCI’s broadest index of Asia-Pacific shares outside Japan ended up a cautious 0.17 percent overnight.
Editing by Jeremy Gaunt