European stock markets steadied and the dollar largely fell against main rivals on Tuesday as investors awaited monthly US inflation data that could determine the Federal Reserve's next move on interest rates.
Expectations are for the US central bank to hold fire at the end of its meeting on Wednesday – after 10 straight hikes to combat elevated inflation. But there is a chance it could hike again should Tuesday's consumer prices number weaken less than expected.
"If we don't see a slowdown in core (inflation) prices, then that might introduce some nervousness that might prompt the Fed to hike again tomorrow instead of the pause that is currently being priced," noted Michael Hewson, chief market analyst at CMC Markets.
Core inflation strips out contributions from energy and food – the two sectors mainly responsible for consumer prices indices rocketing worldwide over the past year.
If we don't see a slowdown in core (inflation) prices... that might prompt the Fed to hike again tomorrow instead of the pause that is currently being priced- Michael Hewson, chief market analyst at CMC Markets
The Fed decision comes as central banks around the world continue to struggle in their battle against inflation, which remains well above their two per cent targets.
The European Central Bank is expected to unveil another increase on Thursday despite the eurozone dipping into recession, while the Bank of Japan is tipped to stand pat when it meets on Friday.
Canada and Australia announced increases last week.
Official data on Tuesday showing record UK wage growth, despite lagging the country's inflation rate, increased the chances of another rate hike from the Bank of England next week and possibly more thereafter, analysts said.
China's central bank, however, announced a small cut in its short-term lending rates as authorities try to kickstart a recovery in the economy, which has run out of steam after an initial burst following the lifting of zero-COVID restrictions.
Tuesday's move comes after figures showed inflation remained subdued and saw the yuan drop against the dollar, though the currency pared the losses on reports that fresh stimulus measures were being discussed.
The cut reveals "growing concerns among policymakers about the health of China's recovery", said Capital Economics economist Julian Evans-Pritchard.
China's problems have weighed on the crude market, even after Saudi Arabia's surprise decision to slash output by a million barrels a day next month.
Oil futures jumped on Tuesday but made only some headway into the four per cent losses suffered a day earlier when Goldman Sachs slashed its price forecast for the third time in six months.