U.S. futures are pointing to a higher open on Wednesday as we await more data and appearances from some key Federal Reserve officials.
The dollar rose to its highest level in a month on Wednesday after Fed Chair Janet Yellen claimed it would be imprudent to leave rate on hold until inflation reaches 2% while reiterating that a gradual approach to hikes is appropriate. While this doesn’t mark a change in the message delivered last week, it does reinforce the view that tightening will continue despite inflation running below target and currently showing little sign of improving.
It’s interesting to note though that despite the central banks' expectations on interest rates, the dollar hasn’t yet recovered significantly from its lows and market pricing of rate hikes next year is far below what the dot plot indicated. Perhaps this reflects a belief that Yellen’s term won’t be extended beyond February and she will be replaced by someone less inclined to raise interest rates or that inflation expectations are far lower among investors than what the Fed is projecting. It may take time for the two expectations to become aligned but the more hawkish Fed message in the meantime may be enough to support the greenback.
Core durable goods orders and pending home sales data should keep attention on the U.S. dollar today, as will comments from Lael Brainard, Neel Kashkari and James Bullard who are all scheduled to appear. It’s a very busy week in terms of Fed appearances and the views of Brainard and Kashkari in particular—both voters on the FOMC this year—will be monitored closely. All of the above are on the dovish side of the spectrum which should be taken into consideration when they talk.
EIA will release oil inventory data for the last week today and are expected to report a build of around 2.3 million barrels. Despite possibly reporting a fourth consecutive build today, oil prices have been on the rise in recent weeks as reports have suggested that demand is growing at a faster pace and the market is showing signs of finally rebalancing. Oil prices are also being supported by the disputed referendum in Iraq’s Kurdistan region, which has threatened to hit oil supply by around 500,000 barrels a day after Turkey’s President Recep Tayyip Erdogan threatened to cut off the pipeline that transports oil from the region to the Turkish port of Ceyhan.