Bank of America Global Research discusses the USD outlook into the September FOMC decision on Wednesday.

"There remains considerable two-way risk for the USD at Wednesday's meeting. At the extremes, we see the FOMC-related bull and bear case for the USD as the following:

Bullish USD case: The Fed hikes and some combination of the following are met: 1) The SEP shows broadening support for additional hikes (relative to the June SEP); 2) growth and inflation forecasts are elevated even in the context of further hike guidance; 3) Chair Warsh himself (intentionally or unintentionally) offers some indication that a more prolonged campaign is necessary to return inflation on the path to 2%.

Bearish USD case: Of course, if the Fed opts to hold in the face of sticky inflation and market pricing, we expect the dollar to depreciate swiftly and significantly. But even in the event of a hike, the USD could soften with dovish or non-committal language from Warsh," BofA notes.

Bottom line: Fed expected to hike 25bp. SEP to show 50bps of total hikes in '26. Fed choice is simple: hike or bond spike. Warsh likely to deliver hawkish hike, which should support higher front end rates & twist flattening of UST curve. USD outcome will be determined by Fed ability to "out-hawk" market expectations & other G10 central banks.