•Dollar index soars to its highest level since mid-April. The dollar stayed near a 7-month high against a basket of currencies after US CPI data for October supported the case for a December rate hike. In the wake of the encouraging US employment report for October, the unexpected rise in the CPI kept USD on a rising mode. As we have mentioned several times, the greenback has become largely data-driven and further improvement in the fundamentals are likely to boost it further.
•The highlight of the day will be the Fed’s October meeting minutes. At this meeting, Fed officials held off on raising interest rates but signaled that a hike could come at their December meeting. This is the first time that the policymakers explicitly said they may raise interest rates at their next meeting, pushing the probability of hike from around 30% ahead of the meeting to almost 50% afterwards and to around 70% following the astonishing October employment report. The minutes will give us more insights about the members’ view over the outlook of the US economy and whether the Fed is on track to raise rates next month.
•Overall, the minutes are expected to mirror the statement accompanying the decision and to suggest that December liftoff is “alive”. This could support the dollar. However, if Fed officials emphasize that the strength of the dollar might continue to be a drag on growth, as they did in the last few minutes, we could see the greenback losing some of its steam. Another key point will be the discussion on the pace of rate increases following the first hike. Fed members have repeatedly emphasized that they will take a gradual approach. As such, they may retain their data-dependence after the liftoff to avoid undue market turmoil. Following the minutes, the focus will remain on any Fed speakers going into the December meeting, as we get a comprehensive set of data that will define rate hike expectations.
•As for the rest of the events, during the European day, the only noteworthy event we have is the ECB non-monetary policy meeting. Even though this meeting may pass unnoticed, given the recent reference from ECB’s Praet that the Governing council could discuss whether there is a case for further easing, the market is likely to pay attention to any headlines coming, out if any.
•In the US, housing starts and building permits for October are to be released. The housing starts are expected to decline slightly, while the more forward-looking building permits are forecast to have increased. These data are likely to confirm the overall strength in the housing sector and could support the dollar.
•We have two ECB and three Fed speakers scheduled on Wednesday’s agenda. From the ECB, we have Executive Board members Sabine Lautenschlager and Yves Mersch, while from the Fed, Cleveland Fed President Loretta Mester, New York Fed President William Dudley and Atlanta Fed President Dennis Lockhart speak.