US Dollar Strengthens Ahead of FOMC Meeting Amid Rising Yields

The US dollar has been trading at stronger levels ahead of the Federal Reserve's (Fed) upcoming meeting, according to MUFG. Lee Hardman notes that Fed tightening expectations have been repriced higher, leading to a surge in US yields.

As a result, the US Dollar Index (DXY) has recovered to levels seen before the August Treasury buyback announcement. The index has been supported by rising US yields, which have now surpassed pre-pandemic levels.

MUFG highlights that high-beta and emerging market currencies face greater downside risks if bond yields and energy prices continue to climb. Emerging market currencies such as the Chilean peso, South African rand, Hungarian forint, and Mexican peso have underperformed due to higher commodity prices.