By all counts, today's FOMC meeting should be a bore. Between the sharp slowdown in first quarter GDP growth, rise in ADP and jump in the Chicago PMI index, there is not enough consistency in the performance of the U.S. economy since the March Fed meeting for the central bank to adjust its monetary policy outlook. Prior to today's GDP report, investors were hoping that the Fed would acknowledge recent data improvements and they still could since GDP is backwards looking but the extent of their optimism will be limited.
Another $10 Billion
The central bank is widely expected to reduce asset purchases by another $10 billion this month and with no press conference or changes to economic projections expectation, the outcome of the FOMC meeting should be benign. There would only be excitement if the statement contained some type of discussion about when interest rates will start to rise but having seen the volatility caused by Janet Yellen's comment on the issue after the last press conference, it is in the central bank's interest to keep new guidance at a minimum for now. In other words, don't expect the trading range of the dollar to widen significantly on the back of the Fed meeting.
Taking a look at the following table, there have been more improvements than deterioration in the U.S. economy since the last FOMC meeting so if the central bank were to alter its tone, a tinge of optimism is expected. Consumer spending rebounded strongly after dipping in the winter and the rise in sentiment suggests that demand increased further in April. Manufacturing and service sector activity also accelerated with today's Chicago PMI report rising to its strongest level since October, contributing to the increase in inflation. Although non-farm payrolls grew at a slightly slower pace in March and average hourly earnings stagnated, the data is consistent with a continued recovery in the labor market. Given the dip in jobless claims, this week's non-farm payrolls report should show further improvement. The performance of the housing market has been disappointing but low interest rates should keep the sector supported. First quarter GDP on the other hand was very weak, with the economy growing a mere 0.1% but growth is expected to accelerate in the second quarter. 
Kathy Lien, Managing Director of FX Strategy for BK Asset Management.