Global stocks dipped on Wednesday as ‍crunch time neared for a divided ‍Federal Reserve policy board and earnings results that could test sky-high valuations in the AI sector.

With most assets frozen in the Fed headlights, attention was grabbed ​by a sudden slide in the Japanese yen and the continued dizzy ascent of silver prices, with both hitting record levels.

The futures market showed traders were confident the Fed would cut ⁠rates by a quarter point to 3.50-3.75% later on Wednesday, pricing it at an 89% probability. Yet they also assumed the guidance was unlikely to suggest more rate cuts would quickly follow, ⁠implying ‌just a 21% chance of a January move.

STOCKS DIP

European stocks edged down 0.1%, while U.S. futures rose 0.1% and the dollar dipped against a basket of currencies.

Much will depend on how many "dot plot" forecasts from Fed members see one, two or no more cuts next year. Analysts also suspect at least ⁠two of the 12 voters could dissent against an easing, putting Chair Jerome Powell in a difficult position.

Complicating matters further is the lack of data due to the government shutdown, which is going to delay the all-important November payrolls report to December 16, while inflation figures are due two days later.

"The dot plot is where I'm really focused. The market is pricing in two cuts, the dot plot from September was one. So what's happening there? Are we going to see a recalibration?" City ⁠Index strategist Fiona Cincotta said.

"If they leave that dot ​plot unchanged, then I think we're going to need to see a hawkish repricing in the market, which I think then does actually put the 'Santa rally' in danger," she said.

Seasonally, December is one of the ‍months of weaker performance for the S&P 500, except for the final two weeks, when stocks tend to rise into year-end, known as the "Santa rally", as investors square their books for the year.

VOLATILITY AHEAD

While Wednesday's session looks ​likely to be dominated by a cautious wait-and-see attitude, Thursday could bring a bout of volatility, as investors beyond the United States react to the Fed's decision and once earnings from Oracle and Broadcom, now seen as AI bellwethers, land after the bell.

"What they detail on capex intentions and future funding plans could resonate across the AI space, and there are clear risks they could miss on cloud infrastructure," said Chris Weston, head of research at broker Pepperstone.

"The options market is pricing an earnings-day move of around -/+10%, so outsized volatility is certainly expected."

In bond markets, 10-year Treasury yields were steady for the moment at 4.187%, having risen by 17 basis points since the start of December alone, heading for their largest monthly increase since May.

The dollar has drawn some support from the recent rise in yields that on Wednesday rattled the yen, which is sensitive to dynamics in the Treasury market.

The euro was up at 182.46 yen, having broken to an all-time high of 182.64 overnight. The pound hit peaks not seen since mid-2008 at 208.95 yen.

The dollar was last ⁠down 0.2% at 156.62 yen, having risen 0.5% on Tuesday.

SILVER HITS RECORD

Silver was again the star in commodities, ‌having cleared the $60 barrier to reach a record $61.45 per ounce. The metal has more than doubled in price this year as inventories dwindled and a bullish trend drew demand from momentum funds.

There is also rising demand from sectors including solar energy, electric vehicles and their infrastructure, and data centres and artificial intelligence, the Silver Institute industry association said in a ‌research report.

Gold was at $4,202 ⁠an ounce, having peaked at $4,381 back in October.

Oil prices steadied, having lost ground early in the week when Iraq restored production at Lukoil's West Qurna 2 oilfield, one of the world's largest. ⁠Brent crude futures were up 0.2% at $62.05 a barrel.

(Additional reporting by Wayne Cole in Sydney; Editing by Sonali Desai and Alex Richardson)