LONDON – Investors pressed pause on Wednesday to see what the Federal Reserve will do to dampen inflation, while a leap in prices to a 10-year high in Britain piled pressure on the Bank of England to act on Thursday.

Omicron, however, remains a wild card in the equation with the full impact of the new coronavirus variant as yet unclear, analysts said.

The MSCI global stock index was flat at 735.13 points, just over 3 percent below a lifetime high last month.

At 1900 GMT the Fed is expected to announce that it is speeding up the end of its pandemic-era bond purchases and signal a turn to interest rate rises next year as a guard against inflation at near four-decade highs.

Markets expect at least two hikes in 2022 on the Fed’s ‘dot plot’ of where policymakers see borrowing costs going.

“People will focus on the dots and whether we see a more aggressive interest rate path in 2023,” said David Riley, chief investment strategist at BlueBay Asset Management.

“But with COVID still casting that long shadow it could mean we have a situation where the rebalancing between goods and services demand takes longer, which means goods inflation could persist,” Riley said.

US 10-year Treasury yields were at 1.44 percent, well below a recent 1.693 percent top. The yield curve continued its flattening trend, as investors wager an earlier start to Fed tightening will lead to slower inflation in the long run.

British consumer price inflation surged to its highest in more than 10 years in November to 5.1 percent, exceeding all forecasts from economists.

“It’s all eyes on the Fed, but the UK inflation data is an absolute disaster for the Bank of England – to all intents and purposes they should be hiking rates but the problem is Omicron and the uncertainty around that,” said Michael Hewson, chief markets analyst at CMC Markets.

“How does the Fed manage the message this afternoon? Too hawkish and it could tip stocks lower,” Hewson said.

The STOXX index of 600 European companies was up 0.45 percent at 471.73 points. Among the standouts, Italian insurer Generali rose 1.4 percent after pledgng to return up to 6.1 billion euros to shareholders.

Shares in IAG, British Airways’ parent company, dropped 0.8 percent after saying it is in advanced talks to cancel its acquisition of rival Air Europa, a further sign of how the travel sector has been hammered by COVID-19.

Nasdaq futures and S&P 500 futures held steady, having eased overnight.

Crude oil eases

Asian shares were flat to lower, with MSCI’s broadest index of Asia-Pacific shares outside Japan easing 0.45 percent in slow trade.

Japan’s Nikkei dithered either side of flat and South Korea was little changed.

The prospect of rising short term rates supported the US dollar, particularly against the euro and yen where monetary policy is expected to lag.

The single currency was left at $1.1270, not far from its recent trough of $1.1184. The dollar was steady at 113.70 yen and near resistance at 113.95.

The dollar index held firm at 96.443, with bulls eyeing the November peak at 96.938.

The risk of rising cash rates has been a burden for gold, which offers no fixed return, and left it sidelined at $1,768 an ounce.

Oil prices eased after the International Energy Agency (IEA) said the spread of Omicron coronavirus variant would dent the recovery in global fuel demand.

Brent fell 0.6 percent to $73.24 a barrel, while US crude lost 0.8 percent to stand at $70.15 per barrel.