By Dhara Ranasinghe and Tom Westbrook
LONDON (Reuters) — European stocks gained ground on Wednesday while U.S. Treasury yields dipped after reaching multi-year highs as recent surging oil prices stoked inflation worries, setting the scene for the Federal Reserve to project rates staying higher for longer.
Yet in Europe, sterling came under pressure after data showed Britain's high inflation rate fell unexpectedly in August, prompting speculation that the Bank of England could pause its historic run of interest rate hikes as soon as Thursday.
Brent crude futures fell 0.8% and eased off 10-month highs. But at around $93.60 a barrel, prices remain up 30% in three months as Saudi Arabia and Russia reduce output.
Higher energy costs led to a bigger-than-expected spike in Canadian inflation, lifting the loonie on Wednesday and triggering selling in bond markets around the world.
The Federal Reserve is expected to leave rates unchanged at the current range of between 5.25% and 5.5% when it concludes a two-day meeting later on Wednesday.
Its policy statement is expected at 1800 GMT, followed by a press conference with Fed chief Jerome Powell.
«While the Fed is not expected to change their policy rate today, the U.S. rate market has been scaling back expectations for rate cuts in 2024 ahead of today's FOMC meeting that has helped to lift short-term U.S. rates,» said MUFG senior currency analyst Lee Hardman, referring to the Fed's rate-setting body.
Two-year Treasury yields were down 3.5 basis points in London trade at 5.07%, having risen sharply on Tuesday, when five- and 10-year Treasury yields reached 16-year highs.
Benchmark 10-year Treasury yields were last trading at 4.34%, having hit 4.371% overnight.
WAITING ON THE FED
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