In a recent note to clients, Bank of America discussed its expectations for this week's FOMC meeting.
Bank of America noted:
The Fed is likely to maintain rates at the ZLB (0.00-0.25%), but make significant tweaks to its policy statement to signal rates would remain at the ZLB for an extended period of time and that it is committed to using a "full range of tools to support the flow of credit". In addition, we expect the statement to acknowledge the significant deterioration in economic conditions and disinflationary pressures.
The FX market will likely take cues more from the Fed's economic assessment than from program tweaks. A sobering assessment of economic activity by the Fed, as well as by other global central banks this week, could well begin to shift the prevailing focus away from policy stimulus and back to the reality of global recession.
We expect a USD rally and renewed risky FX weakness... We expect another leg higher in the US dollar in 2Q, predicated on (1) a recovery in USD demand as financial market turbulence increases, as well as (2) economic divergence amplified by aggressive official US policy support.