Stock markets steady, dollar slips before US rate decision

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Stock markets were little changed and the dollar was down slightly Wednesday as investors awaited the US Federal Reserve's first interest rate cut in more than four years.

The Fed has widely signalled it will cut borrowing costs for the first time since the start of the Covid pandemic in early 2020 -- but uncertainty remained over the size of the reduction.

The Dow and wider S&P both hit record levels Tuesday, but on Wednesday the Dow opened slightly lower and the S&P was flat. The tech-heavy Nasdaq opened slightly higher.

In Europe, Paris and London were down slightly, and Frankfurt up marginally in mid-afternoon trading.

"It's extremely rare to go into a Fed meeting with this amount of uncertainty" about the size of the cut, said David Morrison, analyst at Trade Nation.

"It seems reasonable that traders and investors should sit on their hands for now."

Debate over the past weeks has been on whether the US central bank will cut by 25 or 50 basis points after the country's inflation rate sharply cooled, with CME's FedWatch Tool now ascribing about a 60 percent probability of a 50 bps cut.

The argument against a larger cut is that it could spook markets by signalling that the Fed is worried about the state of the economy, while a smaller cut could disappoint investors who think the Fed has been too cautious in the face of signs of a slowing US economy.

"The rate decision could provoke a good bit of trading volatility in its wake," said Patrick J. O'Hare, an analyst at Briefing.com.

Recent jobs reports have triggered concerns over weakness in the world's biggest economy, which follow on from worries about a growth slowdown in China, the next largest.

Official data Tuesday showed US consumer spending cooled in August, but not as much as expected.

The reading helped temper lingering worries that the country was in danger of slipping into recession.

The dollar slipped about half a percent against the pound, hurt by chances of a 50 basis-points from the Fed coupled with increased expectations that the Bank of England would decide against a consecutive reduction in UK borrowing costs Thursday.

The central bank is seen sitting tight following a regular meeting, as official data Wednesday showed British annual inflation held at 2.2 percent in August.

Elsewhere on Wednesday, oil prices slid as an industry report showed rising crude inventories in the United States.

- Key figures around 1340 GMT -