Dollar edges higher ahead of the September FOMC meeting

The dollar has risen against most currencies as markets have remained quiet ahead of next week’s monetary policy announcements. In addition to the FOMC, more than a dozen central banks in developed and emerging market economies will meet during a week that may set the tone for FX markets over the coming months. While we doubt that the FOMC will set out a plan for tapering its asset purchases, the new economic projections may shed some light on its reaction function given building cyclical inflationary pressures. Our view remains that inflation in the US will stay elevated for longer than the FOMC and investors currently anticipate, in turn supporting higher US yields and a stronger dollar.