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Oil prices held on to most gains from the previous session in early trading on Thursday as investors awaited U.S.-China trade talks later in the day, hoping for signs that tensions clouding the economic growth outlook will ease.

Brent crude futures fell 3 cents, or 0.05%, to $64.89 a barrel by 0032 GMT, while U.S. West Texas Intermediate crude futures fell 11 cents, or 0.18%, to $60.37.

U.S. President Donald Trump and Chinese President Xi Jinping will meet on Thursday in Busan, South Korea, on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit. Markets hope they will agree to dial down trade tensions that have hurt the outlook for global growth and fuel demand.

Trump said on Wednesday he expects to reduce U.S. tariffs on Chinese goods in exchange for Beijing’s commitment to curb the flow of precursor chemicals to make the drug fentanyl.

Also boosting the economic outlook, the U.S. Federal Reserve lowered interest rates on Wednesday, in line with market expectations. However, it signaled that might be the last cut of the year as the ongoing government shutdown threatens data availability.

“The Fed’s decision underscores a broader turn in its policy cycle – one that favors gradual reflation and support over restraint, providing a tailwind to commodities sensitive to economic activity,” Rystad Energy’s chief economist Claudio Galimberti said in a note.

Brent and WTI rose 52 cents and 33 cents, respectively, in the previous session on optimism about the trade talks and a larger than expected drawdown in U.S. crude and fuel inventories.

Crude inventories dropped by 6.86 million barrels to 416 million barrels in the week ended October 24, the EIA said, compared with analysts’ expectations in a Reuters poll for a 211,000-barrel fall.

The dollar nudged higher on Thursday as traders scaled back bets of a U.S. rate cut in December following push back from Federal Reserve Chair Jerome Powell, pinning the yen near an eight-month low ahead of the Bank of Japan’s (BOJ) rate decision.

The day was shaping up to be another busy one for markets with the BOJ’s policy announcement due and a highly anticipated meeting between U.S. President Donald Trump and China’s leader Xi Jinping, where the two will seek to de-escalate their trade war.

Investors were still reeling from the aftermath of the Fed decision in the early Asian session, after the U.S. central bank lowered rates by 25 basis points as expected and said it will end its balance sheet drawdown on December 1.

But Powell took the punch bowl away by saying a policy divide within the central bank and a lack of federal government data may put another rate cut out of reach this year.

That sent the dollar rising broadly, with sterling last trading at $1.3195 after falling to a 5-1/2-month low in the previous session.

The euro was nursing losses and rose 0.03% to $1.1604, after weakening 0.43% overnight.

“Clearly, the FOMC is divided on the policy outlook from here and with the government in shutdown still, I think Powell wants to approach policy more cautiously,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA).

“We still expect a cut in December, but obviously with Powell’s cautious comments, the risk is that a rate cut is delayed to 2026.”

The market odds of the Fed delivering another quarter-point cut in December have eased to around 68%, having been nearly fully priced before Wednesday’s decision. 

Waiting on the BOJ

The focus on Thursday turned to a policy decision from the BOJ. The central bank is seen keeping rates steady but is likely to reiterate its resolve to continue pushing up still-low borrowing costs.

Ahead of the outcome, the yen was languishing near an eight-month low against a resurgent dollar and last stood at 152.59.

It similarly held near an all-time low against the euro at 177.12.

“I think the most interesting thing to look out for is the vote. At the last meeting, two out of nine board members were in favor of a 25-basis-point rate hike. So it will be interesting to see how many officials are calling for a hike at this meeting,” said CBA’s Kong.

“We know that the BOJ tends to be more politically sensitive. So given the Takaichi administration has just been elected, and they are now compiling another economic package, I think the BOJ will stay cautious in the very near term.”

Some investors are betting that the election of Sanae Takaichi as Japan’s new prime minister could complicate the BOJ rate outlook, given she is an advocate of loose monetary policy.

Elsewhere, the Australian dollar was little changed at $0.6575, while the New Zealand dollar eased slightly to $0.5763.

Apart from the BOJ, investors will also have their eyes on an expected meeting between Trump and Xi, as fragile trade ties between the two nations continue to keep markets on edge.

“Given the positive remarks from both parties at the conclusion of the preliminary talks in Malaysia over the weekend, markets already expect that the ceiling for tariffs is in place as China likely backs down from its latest rare-earth controls announcement,” said Garrett Melson, a portfolio strategist at Natixis Investment Managers.