3:38 pm - Treasuries Post Strong Gains: Treasuries slipped off their best levels following today's FOMC rate decision, but still finished with solid gains. Maturities across the complex ticked to their best levels of the session ahead of the FOMC decision, but saw some selling as the Statement indicated the Committee could increase or decrease its bond buying as conditions warrant. The long bond finished with a gain of almost one full point and maturities across the rest of the complex closed decidedly in the green as weak economic data persisted. Today's ISM Index (50.7 actual v. 51.0 expected) and construction spending (-1.7% actual v. 0.5% expected) data both fell short of estimates and continued to fan worries the economy is slowing. The flight to safety pushed yields down to their lowest levels of 2013 as the 10-yr yield fell almost 4 bps to 1.639%. The push to 2013 lows was not limited to the 10-yr yield as both the 5- and 30-yr yields also saw their lowest levels of the year. Curve flattening persisted as the 2-10-yr spread narrowed to 142.5 bps. Elsewhere, precious metals trimmed their losses as gold fell $17 to $1455 and silver sunk $0.55 to near $23.65. Thursday's data slate is full as Challenger Job Cuts (7:30), initial and continuing claims, productivity-prel., unit labor costs, and the trade balance (8:30) are due out.

2:29 pm - Dollar Steady Post-FOMC: The Dollar Index climbed to 81.65, its best levels of U.S. trade, as an initial response to today's FOMC Statement, but has since slipped back to the pre-announcement level of 81.55. Today's selloff has the Index on track to close at a two-month low.

• EURUSD is +40 pips at 1.3205 as the pair catches a bid following the FOMC Statement. The single currency raced to almost 1.3250 earlier this morning, but given up some of those gains. Participants are expecting the European Central Bank to cut its key rate 25 bps to 0.50% at tomorrow's meeting, but, as always, Mario Draghi's press conference will be the key event to follow. Eurozone data is limited to Italian and Spanish Manufacturing PMI.  
• GBPUSD is +55 pips at 1.5590 as trade ticks above the 100-day moving average (1.5560). Today's bid has sterling on track to post its sixth straight day of gains as action looks to test the 1.5700 resistance level. British data will see just Construction PMI.
• USDCHF is -35 pips at .9260 as action holds just off the lows. The pair has shed more than 200 pips amid the current five-day slide, and has slipped back below the important .9300 level. The .9220 area now looms as key support.
• USDJPY is -10 pips at 97.25 amid a rather quiet day for the pair. Action was able to hold the 97.00 area, but the 96.00 support level is the one to watch. Japan's monetary base and Monetary Policy Meeting minutes will cross tonight.
• AUDUSD is -75 pips at 1.0290 as today's selling has erased almost two days of gains. Early buying provided a test of both the 100- and 200-day moving averages near 1.0400, but sellers were able to take control and now have participants eyeing the key 1.0200 support level. Australian data includes building approvals and import prices. China's HSBC Final Manufacturing PMI will be released.
• USDCAD is -10 pips at 1.0055 as trade breaks down to its lowest level in more than two months. Attention now turns to the 1.0000/1.0050 support area that is aided by the 200-day moving average. Canada's trade balance will be released tomorrow.  

2:04 pm - FOMC Excerpts:

• "Information received since the Federal Open Market Committee met in March suggests that economic activity has been expanding at a moderate pace."
• "Labor market conditions have shown some improvement in recent months, on balance, but the unemployment rate remains elevated."
• "Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth."
• "Inflation has been running somewhat below the Committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable."
• "The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate."
• "The Committee continues to see downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective."
• "The Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative."
• "The Committee will closely monitor incoming information on economic and financial developments in coming months. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives."
• "To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent."
• "Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations."

12:56 pm - Afternoon Update: 2-yr unch @ 99 26/32...3-yr +01/32 @ 99 27/32...5-yr +05/32 @ 99 28/32...7-yr +10/32 @ 100 12/32...10-yr +16/32 @ 103 13/32...30-yr +1 08/32 @ 106 06/32...EURUSD +30 pips @ 1.3195...GBPUSD +45 pips @ 1.5580...USDJPY -15 pips @ 97.25...USDCHF -30 pips @ .9265...AUDUSD -85 pips @ 1.0280...USDCAD +15 pips @ 1.0085

11:48 am - Treasuries Press Session Highs: Treasuries remain near their best levels of the session even as the major averages have managed to halve their losses. The complex saw little reaction to the release of the Quarterly Refunding Statement, which indicated the sizes of bond auctions for the coming quarter will remain stable. There had been some speculation that increased tax receipts and lower government spending would enable Treasury to reduce its borrowing needs, thus lowering the amount of issuance available for purchase. That speculation presumably contributed to the drop in yields recently, but given that Treasuries have held their gains after the release of the quarterly refunding statement, it is arguable that concerns about weakening economic data have been the primary driver. Current action has the long bond up a full point as maturities across the complex press their highs ahead of this afternoon's FOMC rate decision. The solid bid has yields off as much as 5.5 bps at the long end with the 10-yr yield falling to a 2013 low of 1.627%. Aggressive flattening has taken hold along the yield curve with the 2-10-yr spread now tighter at 142 bps. Elsewhere, precious metals are on their lows with gold down $30 at $1442 and silver off $0.90 near $23.25.

11:01 am - Dollar Trims Losses: The Dollar Index slumped to 81.35 following this morning's disappointing ADP Employment Change, but has managed to erase a good portion of its losses even after both the ISM Index (50.7 actual v. 51.0 expected) and construction spending (-1.7% actual v. 0.5% expected) both fell short of estimates. Recent buying has run the Index back up to the 81.60 level as traders now await this afternoon's FOMC meeting. 

• The euro ran to a two-month high of almost 1.3250 in early action, but has slipped back below the key 1.3200 level. Central bank action will dictate the next leg as both the Fed and European Central Bank will opine in the next 24 hours.
• The pound hit a two and a half-month high of 1.5595 in early trade, but has pulled back as the dollar has managed to recover a good portion of its losses against all of the major pairs. Today's Manufacturing PMI was the latest number out of the UK to post an upside surprise, and that has sterling looking for a sixth day of gains. Current action must contend with the 100-day moving average (1.5560) while a breakout sets up a potential test of the 1.5700 level.
• The yen strengthened to 97.00, but has recently trimmed its gains, slipping to 97.30 per dollar. Action has been rather lackluster as traders focus their attention elsewhere.
• The Australian dollar is under pressure after the latest Chinese Manufacturing PMI miss. Selling has dropped the hard currency to 1.0285, and has participants watching the 1.0200 level closely. That area has marked the lower end of the range that has been in place since July.  

10:06 am - Data Reaction: Treasuries remain near their best levels of the session following the disappointing ISM Index (50.7 actual v. 51.0 expected) and construction spending (-1.7% actual v. 0.5% expected) data. Maturities across the complex hold solidly in the green with the long bond leading the advance, up 25/32. Today's solid bid has yields down more than 4 bps at the long end with the 10-yr yield sliding below 1.640%. Curve flattening persists as the 2-10-yr spread trades tighter at 143 bps. Elsewhere, precious metals are weak with gold and silver at $1454 and $23.50 respectively.

09:45 am - Upcoming Auctions:

• Tuesday, May 7: $32 bln 3-yr note auction
• Wednesday, May 8: $24 bln 10-yr note auction
• Thursday, May 9: $16 bln 30-yr bond auction

08:20 am - Data Reaction: Treasuries have climbed to session highs following the weaker than expected ADP Employment Change (119K actual v. 155K expected). Maturities across the complex have climbed off their respective flat lines and now hold modest gains as a 7/32 advance at the long end leads the way. The light buying has yields off close to 1 bp apiece with the 10-yr slipping to 1.665%. A slightly flatter yield curve has the 2-10-yr spread tighter at 146.5 bps. Elsewhere, precious metals are lower with gold down $6 at $1466 and silver off $0.30 near $23.90.

07:58 am - European Yields: Debt markets across most of Europe are shuttered in observance of Labor Day, but UK Gilts are trading. Action holds little changed as yields across the curve remain within 1 bp from yesterday's closing levels. The Gilt complex has seen little reaction to the better than expected Manufacturing PMI (49.8 actual v. 48.6 expected, 48.6 previous) as it appears traders are joining their other European counterparts on holiday. The flat session has the 10-yr Gilt yield holding at 1.700%.

07:15 am - Dollar Lower Ahead of FOMC Decision: The Dollar Index was under pressure in overnight trade, falling to the 81.60 as traders await today's FOMC rate decision. The greenback has been offered in the five previous sessions, and is currently testing support in the vicinity. 

• EURUSD is +45 pips at 1.3210 as trade climbs above the April highs (1.3200). Today's action has been choppy as markets across the eurozone are shuttered for Labor Day.
• GBPUSD is +35 pips at 1.5570 as sterling gains for a sixth straight day. The buying comes after Britain's Manufacturing PMI remained in contraction but posted a better than anticipated 49.8 (48.6 expected, 48.6 previous). Recent gains have the pair above its 100-day moving average (1.5560), and looking to move into the 1.5700 resistance level.
• USDCHF is -20 pips at .9275 as trade slides for a fifth day. Today's losses have the pair slightly below the key .9300 area with .9220 setting up as a key level. Most Swiss banks are closed for Labor Day.
• USDJPY is +15 pips at 97.55 after early selling was unable to penetrate the 97.00 level. Today's bid comes even as Japan's average cash earnings (-0.6% YoY actual v. -1.0% YoY expected) continued a recent trend of better than expected data. Key levels to watch include 96.00 and 100.00.
• AUDUSD is -5 pips at 1.0360 as action has been limited to a tight 35 pip range. Australia's HIA New Home Sales jumped 4.2% MoM, and that managed to help offset the disappointing Chinese Manufacturing PMI (50.6 actual v. 50.8 expected, 50.9 previous). USDCNY was unchanged at 6.1697 as banks were closed for Labor Day.
• USDCAD is -15 pips at 1.0050 as trade pushes lower for a sixth session. Today's weakness has dropped the pair below its 100-day moving average, and has traders looking towards support at parity that is aided by the 200-day moving average. Bank of Canada Governor Mark Carney will speak in Edmonton.  

06:49 am - Treasuries Hold Little Changed: Treasuries hold little changed following a quiet overnight trade as markets around much of the world were closed in observation of Labor Day. The flat trade has maturities hovering near yesterday's closing levels ahead of this afternoon's FOMC rate decision. The benchmark 10-yr yield remains near its lowest levels of 2013, currently sitting at 1.674%. An unchanged yield curve has the 2-10-yr spread at 146.5 bps. Elsewhere, precious metals are lower with gold down $2 at $1470 and silver off $0.10 near $24.10. Data remains heavy with the weekly MBA Mortgage Index (7), ADP Employment Change (8:15), ISM Index, construction spending (10), FOMC rate decision (14), and auto/truck sales (15).