Fresh round of geopolitical tensions has investors flocking to safe havens on Tuesday. Russian President Vladimir Putin's recent decree authorizing the use of nuclear weapons against non-nuclear states supported by nuclear powers has rattled markets. This move came as a response after the United States greenlighted Kyiv's use of long-range missiles against military targets inside Russia. Confirmations from both local sources and the Russian Defence Ministry, indicate that Ukraine has already initiated missile strikes into Russian territory.

As the geopolitical landscape heats up, the US Dollar, along with traditional safe-haven currencies like the Swiss Franc and Japanese Yen, is seeing inflows:

This advance reversed the risk-on sentiment that was seen during Monday's trading session. US equities have turned red, underscoring the market's shift towards risk aversion.

Fundamentally speaking, the near-term outlook for the US Dollar remains robust, bolstered by expectations that Trump’s economic agenda will spur inflationary pressures and stimulate growth. This scenario diminishes the likelihood of the Fed delivering further interest rate cuts. Recent strength in retail sales for October has led traders to scale back bets on a rate reduction at the upcoming December meeting. The probability of a 25 basis point cut has dropped to 58% from 77% a month prior. Consequently, the room for pullback in USD appears to be limited and the current DXY retracement will likely meet strong buying interest near the recent resistance line which after the breakout turned into support:

Turning to domestic economic indicators, the focus today shifts to the US housing sector. Market participants are eyeing the latest Building Permits and Housing Starts data, anticipating signs of stabilization. Building Permits are projected to edge up to 1.43 million from the previous 1.425 million, suggesting a modest uptick in future construction activity. Conversely, Housing Starts are expected to slightly decline to 1.34 million units from September's 1.354 million.

Across the pond, the Pound Sterling is under pressure following the Bank of England's Monetary Policy Hearings. Governor Andrew Bailey and other policymakers appeared before the Treasury Select Committee, shedding light on their latest interest rate decisions. Bailey's comments about the pace of disinflation being faster than anticipated provided justification for the recent 25 basis point cut to 4.75% on November 7. However, his acknowledgment of persistent upside risks to inflation has added a layer of uncertainty.

Investors are now turning their attention to the upcoming Consumer Price Index data for October, slated for release on Wednesday. The figures are expected to play a pivotal role in shaping market expectations ahead of the BoE's December meeting. Consensus forecasts predict a 0.5% month-on-month increase in headline CPI, following a flat reading in September. Year-on-year, headline inflation is estimated to accelerate to 2.2% from 1.7%. Core CPI, excluding volatile food and energy prices, is anticipated to maintain steady growth at 3.2%. Traders are currently pricing in an 80% chance of another 25 basis point rate cut to 4.50%, which would mark the BoE's second consecutive cut and the third this year. Close attention will also be paid to services inflation, a metric closely monitored by BoE officials in their policy deliberations.