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European stocks tread water ahead of US Fed meeting

WASHINGTON, DC - JUNE 30: Federal Reserve Chair Jerome H. Powell testifies before the House Financial Services Committee on Capitol Hill on June 30, 2020 in Washington, DC. Federal Reserve Chairman Powell and Treasury Secretary Steven Mnuchin testified on their agencies’ response to the coronavirus pandemic. (Photo by Tasos Katopodis/Getty Images)
Federal Reserve chair Jerome H Powell testifies before the House Financial Services Committee on Capitol Hill on 30 June in Washington, DC. Photo: Tasos Katopodis/Getty Images

European stock markets were muted on Wednesday, ahead of the latest policy statement from the US Federal Reserve later this evening.

The DAX (^GDAXI) ended the day up 0.2%, while the CAC 40 (^FCHI) gained 0.1%. The Euronext 100 (^N100) rose 0.3%.

The FTSE 100 (^FTSE) in London underperformed, falling 0.4%. The index was hit by a rallying pound. Around 70% of FTSE 100 earnings are made in dollars, so a strengthening pound makes share prices more expensive.

In the UK, data showed inflation slipped to just 0.2% in August as a government meal subsidy scheme pushed down prices.

Watch: New figures show the Eat Out To Help Out scheme pushed inflation down to 0.2%

Wall Street was trading higher as European markets shut. The S&P 500 (^GSPC) was up 0.5%, the Dow Jones index (^DJI) rose 0.8%, while the Nasdaq (^IXIC) was flat.

Investor attention was largely focused on the US Fed, which began its two-day policy meeting on Tuesday and will make a policy statement at 7pm UK time.

READ MORE: UK inflation falls sharply as Eat Out to Help Out cuts average prices

Jim Reid, a senior strategist at Deutsche Bank, said the statement would be “the highlight of the day for investors.”

“No changes in policy are expected at today’s Fed meeting, with the recent speech by Fed chair Jerome Powell at the Jackson Hole virtual symposium still fresh in the memory,” said Michael Hewson, chief market analyst at CMC Markets.

Watch: Yahoo Finance's Oscar Williams-Grut has the latest from London

“His comments that the Fed was now looking at implementing a new policy of AIT or ‘average inflation targeting’. This means that central bank policymakers would be prepared to tolerate prices rising above 2% for periods of time to compensate for other periods of time when inflation is running below target.

“This raises a number of key questions, firstly in how you determine the average benchmark, given the Fed has struggled to get anywhere near its existing 2% target for most of the last 20 years now.”

READ MORE: FOMC Preview: Lack of fiscal stimulus casts shadow over Fed

Asian stocks mostly fell overnight. The Shanghai Composite (000001.SS) dropped 0.4%, the Shenzhen Component (399001.SZ) fell 1.1%, and the Hong Kong Hang Seng index (^HSI) was flat. Japan’s Nikkei (^N225) was flat and the Korean KOSPI (^KOSPI) dropped 0.3%.