By Marc Jones

LONDON (Reuters) – World shares inched higher on Thursday buoyed by U.S. President Donald Trump’s promise of a first trade deal in his global tariff war – tipped to be Britain – while the dollar gained as markets pushed out the chance of near-term Fed rate cuts.

Traders were also limbering up for an expected Bank of England quarter-point rate cut later in the day. Sweden and Norway had already left their rates steady, but both hinted at future cuts given all the global uncertainty.

Europe’s main stock markets opened higher, led by a 1% rise from Germany’s export-heavy DAX and a 0.3% gain for London’s FTSE, plus a similar lift for sterling against the euro, on the trade deal signals.

U.S. President Donald Trump had posted on social media that he would hold an Oval Office press conference later on a “major trade deal with representatives of a big, and highly respected, country,” using all capitalized letters.

Wall Street futures were up nearly 1% too, but economists are eager to see the deal’s details later and whether the baseline 10% tariff Trump has slapped on all countries up until now can be negotiated away.

Investors are also anxiously awaiting planned talks between U.S. and Chinese officials in Switzerland on Saturday, which could mark the first step in dialling down the damaging trade war between the world’s top two economies.

Markets were still digesting the Federal Reserve’s decision to leave U.S. interest rates in the 4.25%-4.5% range for a third straight meeting and its warning that the stagflationary risks of higher inflation and higher unemployment had risen.

Chair Jerome Powell said the Fed was still in “a good place” in terms of its policy, given that it wasn’t clear if the U.S. economy will continue its steady growth, or wilt under mounting uncertainty and a possible spike in inflation.

“It’s not at all clear what the appropriate response for monetary policy is at this time,” Powell said, prompting markets to scale back the chance of a June rate cut to just 20%, from 30% a day earlier, while a move in July is now priced at 70%, compared with a near-certainty just a week ago.

“The addition of the phrase ‘the FOMC….judges that the risks of higher unemployment and higher inflation have risen’ says it all,” Fitch Ratings Chief Economist Brian Coulton said. “The tariff shock will reduce real GDP growth and raise prices at the same time.”

UNCERTAINTY

In the bond markets, 10-year U.S. Treasury yields edged up 2 bps at 4.29%, while Germany’s 10-year yield – the euro area’s benchmark – also rose fractionally to 2.48%. [GVD/EUR]