MUFG Research discusses its expectations for this week's FOMC policy meeting on Wednesday.
"All in all, the FOMC meeting should prove supportive of the belief of moving toward the point of tapering. Some of the Fed tightening that had been built into market pricing at the short-end of the yield curve since the June FOMC has started to reverse of late but we do not see the meeting further extending that reversal. Longer-term yields have already reversed having reached extreme lows unjustified by broader fundamentals and equity markets. Yields could extend further higher. Assuming progress toward the point of QE tapering remains post-FOMC, the US dollar should remain supported," MUFG notes.
"With positioning becoming more balanced, we suspect based on our assumption for the FOMC meeting that gains for the dollar at this stage will be more modest and contained," MUFG adds.