USD: With real yields a hot topic, tonight’s FOMC minutes will be key - ING

FX Strategists at ING suggest that minutes from the last FOMC meeting will be in focus later today amid growing expectations that the Fed could change its inflation strategy in September. 

"US inflation expectations derived through the 5Y5Y inflation swap touched 2% yesterday – a new high in this recovery cycle. This is feeding into the current conviction view that: a) a recovery is underway (helped potentially now by the Democrats softening their position on the next round of stimulus) and b) the Federal Reserve will not touch the monetary brakes for several years."

"The driving narrative of negative US real yields devaluing the dollar and reflating financial assets will be challenged tonight when the minutes of the July 29 FOMC are released. These are in focus since expectations are growing that the Fed will shift its monetary policy strategy at the September 16 meeting – potentially adopting Average Inflation Targeting (AIT)."

"Any clues from the July minutes as to its likelihood and any insights on what it would take for the Fed to initiate Yield Curve Control could see dollar losses extend. The biggest risk over the next 24 hours is probably stretched short dollar positioning."

"A short-term correction cannot be ruled out if the switch to AIT is more an ‘evolution than a revolution’. However, we doubt any short, sharp dollar rallies are sustainable and that the dollar should stay pressured into a very contentious Presidential election in November. Expect DXY to stay soft into the minutes, DXY pressing 92.00."