Manufacturing is the theme of day in FX today at least until 19:15 GMT when FOMC will issue its interest rate decision widely expected to hike US rates to 4%. In the meantime Euro-zone PMI numbers printed comfortably above the 50 boom/bust level at 52.7, aided largely by the jump in German PMI to 53.1 from 52.1. The lower euro continues to be beneficial to the European industrial sector as export demand stimulates growth in manufacturing greatly aiding the region's producers.  US numbers are projected to print at 57 slightly lower than the 59.4 reading of last month, but expansionary nevertheless. Traders will likely focus on the price paid component to determine if the positive numbers were a result of simply higher input costs or true organic demand.

The EUR/USD rose back above the 1.2000 level with trading for the rest of the session likely to be cautious ahead of the Fed announcement and its accompanying statement. With the rate hike essentially baked into the price, the market will focus on any change in tone and wording of the Fed's message. Although recent data including Friday's GDP numbers has been supportive of the strong growth scenario, yesterday's news that Consumer Spending declined for the second month in a row - the first such occurrence in 15 years - coupled with a revenue warning from Dell, the preeminent maker of computers for the US consumer and business market, provides ominous hints that US consumer demand may have already slowed markedly.  With critical Christmas shopping season nearly upon us, these fragmentary reports suggest that US Retail Sales may be far less robust than the market expects. All of which may conspire to severely limit Fed's tightening  policy sooner than most analysts predict.

We have no idea if the Fed is sensitive to these early warning signs of demand exhaustion, but we would not be surprised to see the EUR/USD rally despite a hike to 4% rates, if the Fed's statement even obliquely addresses these issues. Though, off their highs, energy costs continue to exert a negative influence on US consumption, a  dynamic that will be further exacerbated by higher US interest costs.

Boris Schlossberg is a Senior Currency Strategist at FXCM.