MUFG Research discusses its expectations for the USD reaction around this week's FOMC minutes from the July policy meeting.
"The Fed’s first stage in tightening policy will be to begin tapering QE. It has seen the size of the Fed’s balance sheet continue to expand this year by USD894 billion to USD8.26 trillion," MUFG notes.
"The Fed’s plans for QE tapering will come back into sharper focus again in the week ahead when the Fed releases the minutes from last month’s policy meeting. Over the past year there has been a clear pattern for the US dollar to strengthen initially following the release of FOMC minutes although only very modestly. However, there is a risk of bigger market reaction when the Fed’s policy is moving closer to a pivot point. It poses the main event risk of disrupting the quiet period trading we have seen over the summer period," MUFG adds.