Market expectations for the Fed to commence its rate tightening cycle next month are around 66% now and although this does not mean it’s certain that they will move on 16th December the feeling is that the chances are far higher than they were in the run up to the September meeting. The dollar has been on the bid since the middle of October benefiting most from weakness in the euro which is hovering some 200 pips above its April lows, where a break below 1.0460 would see levels not seen for over twelve years. What is now a very crowded trade if we see a break below here then we can expect heightened calls for parity on EURUSD.
The FOMC minutes to be released at 19.00 GMT are the highlight of today’s session. Remember that the October meeting took place before the impressive nonfarm payroll release earlier this month, so the focus will be more on the Fed’s discussion around the global economy and the risks that they have previously been looking closely at, namely China. Investors will also be very keen to hear if there is any more detail as to the likely path and timing of rate hikes beyond the first one should it come next month, as this will determine the strength of any subsequent leg higher in the dollar.