Global stocks lost ground and the dollar strengthened as investors retreated from market risk ahead of the conclusion of the US Federal Reserve’s first meeting of the year.

The Stoxx 600 benchmark index fell 1.5 per cent by lunchtime in London, while Germany’s Xetra Dax lost 2 per cent and London’s FTSE 100 slipped 1.3 per cent.

The dollar, as measured against a basket of currencies, added 0.4 per cent while futures markets indicated the negative sentiment towards stocks would continue after Wall Street opens for trading. Contracts on the blue-chip S&P 500 index traded 1.3 per cent lower.

When Federal Reserve chair Jay Powell addresses the media later, investors will be keen for reassurance that the central bank has no immediate plans to taper its $120bn-plus of monthly debt purchases that eased financial conditions through the pandemic and helped drive global equities to record highs.

Analysts and investors broadly expect Mr Powell to signal there will be no changes to the central bank’s loose monetary policy for at least the rest of this year, as rising coronavirus cases continue to inflict damage on the US economy. So any hints towards a tightening of monetary policy could shake confidence.

“Markets are expecting little at this meeting, but likely see Fed communication risks as asymmetric,” said analysts at Bank of America. “It will be hard for the Fed to sound more dovish but easy for the Fed to sound more hawkish.”

Line chart of  showing Fed

“There is not much left for the Fed to do,” said Luis Costa, strategist at Citi, “away from a simple reassurance that an ultra-dovish monetary policy stance will probably stay in vogue for the next many quarters”.

The yield on the US 10-year Treasury bond, which crossed 1 per cent for the first time since March 2020 as investors bet President Joe Biden’s stimulus plan would fuel inflation, fell 0.02 percentage points to just under 1.02 per cent on Wednesday.

Mr Biden’s $1.9tn coronavirus relief plan has run into opposition from Republican lawmakers, while new unemployment claims in the US are running at more than 900,000 a week and retail sales have declined for three consecutive months.

Mr Powell this month rebutted speculation of an early exit from the asset-purchase programme. The Fed’s vice-chair Richard Clarida has also commented that the central bank is unlikely to move on interest rates until inflation stayed at its 2 per cent target “for a year”.

“Tapering expectations are premature,” said Nic Hoogewijs, a bond fund manager at Lombard Odier. “These recent communications from the Fed have shown that a tightening of financial conditions is not what they want to see.”