Looking to the FOMC minutes tonight, much focus will be on the broader views on inflation, which has elevated itself to the top of the priority list now that the US is near full employment.
Whilst the rhetoric from various Fed members has followed to type; Yellen, George and Dudley et all warming to a rate hike by year end and Kashkari and Kaplan tempering this with their dovish bias, the market has increased probability of a December move to over 75%.
As such, tonight's minutes look to have a volatility bias towards any dovish content, which looks unlikely given the clear intentions expressed at the meeting as well as minimal changes seen on the dot plot.
Earlier today we heard Fed Evans saying it was a little premature to pencil in a third rate hike at this stage, but for all the concerns over inflation levels, we feel that CPI is near enough to the magical 2.0% mark, while core is also ticking up again after a period of levelling off around the 1.6-1.7%. Were the FOMC to communicate a little more concern over the impact of the Hurricane season, then we would likely get a repricing in the short end of the curve, and would rein the balance of expectations in a little, but this market seems unable to settle at 50/50, so the pendulum of sentiment continues to sway.
For the USD, there is a natural risk to the downside from current levels, though we are somewhat surprised at the movement in the EUR rate for clear reasons, but from here we will watch USD/JPY and USD/CHF specifically, with GBP and CAD hampered by their respective trade talks in the background as well as growing scepticism over central bank policy profiles in each case.