The US dollar weakens cautiously ahead of Powell's press conference

As investors await the outcome of the Federal Reserve's latest policy meeting at the conclusion of Wednesday's meeting, stock futures were higher on Wednesday morning while the US dollar edged lower in early European trade. There was a lower closing price for the major stock averages in regular trading after the September job openings showed that the labour market is continuing to perform well. The Dow Jones fell about 79 points or 0.2% during the trading session. There was a loss of 0.41% for the S&P 500, and an even steeper loss of 0.89% for the Nasdaq Composite. This is because a healthy job market can encourage the Fed to continue its aggressive stance on rate hikes.

During the last few days, equity markets have risen as a result of increased confidence that Fed Chair Jerome Powell will hint, at his subsequent press conference, that the central bank will pace its rate hikes more slowly, suggesting that the December rate hike will be lower than anticipated.

Nevertheless, with the still-tight labour market and the lack of any signs that core inflation will ease any time soon, the central bank could easily maintain its aggressive tightening path.

Federal Reserve meeting

Investors are eagerly awaiting the announcement of the Federal Reserve's key policy decision, with most analysts expecting the Fed to announce that it will increase the interest rate by three-quarters of a point, the 4th increase in a row of that size in its effort to combat high inflation. However, market participants are expecting to see a signal from the federal reserve that it will be ready to slow down the pace of its rate-hiking plan by the end of the year. While it may appear that the dollar has lost some strength, it still has enough strength to regain or surpass its recent highs. Therefore, its retreat is likely to be temporary at this point.

Strengthening demand boosts oil prices

In other news, the price of oil rose on Wednesday after industry data showed a surprise drop in US crude stocks, indicating despite steep interest rate hikes dampening the global economy, demand remains strong.

The American Petroleum Institute reported that U.S. crude oil inventories fell by nearly 6.5 million barrels during the week ending Oct. 28, which is another positive sign for demand. Additionally, the upside momentum of oil was also supported by the unconfirmed news of China's withdrawal from the zero-COVID regime.

Oil prices were also supported by a softer US dollar. When the dollar weakens, commodities priced in the greenback become more affordable for holders of other currencies.

As the Fed is expected to announce its interest rate decision on Wednesday, the greenback, which has been trending upward in recent weeks, has found itself sliding from a near one-week peak versus major peers.

A potential disruption to the oil market that is expected to occur from the European Union embargo on Russian oil starting on Dec. 5 may also be contributing to the rise in prices. As a result of this ban, which is a reaction to Russia's invasion of Ukraine, oil products will be banned from entering the Eurozone beginning in February.

There is no doubt that, with the EU embargo now in the headlights of the market, leading to the possibility of losing between 1-3 million barrels per day, the price of oil could skyrocket when the embargo takes effect. Additionally, whenever China makes a U-turn in its zero-Covid policy an earlier-than-expected reopening might be on the cards, which can help oil prices to boost further.