Stocks dip, battered dollar recovers as Fed rate cut looms

• Dollar wins respite before expected Fed rate cut
• Canada also set to cut rates due to weak labour market
• Indonesia delivers surprise rate cut

LONDON, Sept 17 (Reuters) - World stocks held just below recent record highs, gold retreated and the dollar won a reprieve, ahead of a widely anticipated Federal Reserve rate cut later on Wednesday taking place against a backdrop of concern about the future of Fed independence.

European shares ceded early gains .STOXX, U.S. stock futures dipped ESc1, STXEc1, Japan's blue-chip Nikkei index .N225 pulled back from record highs and the dollar rallied a day after taking a beating on Fed easing bets.

The Fed is expected to cut interest rates by a quarter of a percentage point to the 4.00%-4.25% range later on Wednesday, with the focus on any comments from Fed Chair Jerome Powell on the outlook for monetary policy.

The September meeting also takes place under unusual circumstances - Steven Miran, on leave from the Trump administration, has joined the Fed board while Fed governor Lisa Cook has so far fought off efforts by President Donald Trump to oust her.

"A (25 bp) rate cut is fully priced in. There were some questions around a 50 bp cut given the doves on the board but I think that's less likely," said Nina Stanojevic, senior investment specialist at St. James’s Place.

"What will be interesting is the narrative that comes out of the meeting and where the trajectory of rates is going to be."

The dollar index =USD, which tracks the dollar against a basket of currencies of other major trading partners, edged up 0.2% after falling on Tuesday to the lowest since early July.

The euro EUR= slipped 0.25% to $1.1840, after touching $1.1867 on Tuesday, its highest level since September 2021. But the dollar was a touch softer at around 146.33 yen following a 0.6% slide in the previous session JPY=.

"A dovish shift in the Fed’s stance would lead to more monetary policy easing in 2026 than may be warranted", ABN AMRO analysts said in a note. "This could also partly explain the extent of rate cuts currently priced in by market."

Money markets price in almost 70 bps of Fed easing by year-end.

STAYING FIRM

World stocks held just below Monday's record highs .MIWD00000PUS, while in Asia Hong Kong's benchmark Hang Seng Index .HSI jumped 1.8%, buoyed by signs of progress of a deal to allow the Chinese-owned social media platform TikTok to keep operating in the U.S.

News that Japan's exports fell for a fourth straight month in August highlighted the toll on major economies from the wide-ranging tariffs imposed by the Trump administration.

The Bank of Canada is also expected to cut rates on Wednesday to contend with a flagging labour market and trade frictions.

In Europe, data showing UK inflation holding at 3.8% in August reinforced expectations for no rate change at Thursday's Bank of England meeting.

Sterling was a touch softer around $1.3637 GBP=D3.

Elsewhere, Indonesia's central bank delivered another surprise interest rate cut, its sixth cut since it kicked off an easing cycle in September last year, saying economic growth needed to be strengthened.

Indonesian markets have been unsettled by two weeks of protests and unrest across many cities from late August and then last week's abrupt sacking of respected finance minister Sri Mulyani Indrawati.

Oil prices eased, after rising more than 1% in the previous session, though geopolitical concerns provided a floor for the market.

Brent crude futures LCOc1 were last down 0.8%, to $67.89 a barrel, while U.S. West Texas Intermediate crude futures CLc1 eased a similar amount to $64.

Spot gold XAU= eased 0.75% to $3,665 per ounce, after the yellow metal crossed $3,700 for the first time in the previous session.

US inflation and interest rates