Dollar at Monthly Highs over Euro, Yen

U.S. 10-year Treasury bond prices fell to 3-month
highs before bouncing back to close slightly up on the day. Bonds have been
falling steadily since the Fed held rates and came out with slightly hawkish
wording about 2 weeks ago. Bonds typically fall on positive economic news, and
rise on weak news; traders have speculated that the recent wording hints that
the Fed will not be cutting rates any time soon.

The U.S. dollar rose to the highest level in
over a month against the euro, and to the highest levels in 3 months over the
yen. The the dollar continued to gain momentum today after hawkish Fed
comments 2 weeks ago; the Fed held rates, but promised to continue monitoring
inflation vigilantly, leading traders to reduce bets that the Fed will cut
rates any time soon. The euro recently hit record highs over the dollar, so
this dollar momentum is helping to calm traders down a bit. Traders speculated
that yen weakness against the dollar was due to a major resumption of the
carry trade. Against the euro, the yen gained fractionally.

Crude oil rose just over 2% today, in
anticipation of increased summer demand. U.S. refineries have stepped up
gasoline production to meet summer demand, pulling more crude from reserves to
create usable gas. Summer is usually a period of high demand for all types of
energy use, and prices usually rise in line with the extra usage.

Gold futures rose fractionally today. Gold
usually trades inversely to the dollar and with oil; today’s oil gains led to
gold buying, as traders hedged against the pressures of rising energy prices.
Traders decided to ignore a strong dollar today, to instead worry about summer
energy demands. Copper rose over 2% today, as global copper inventories sit at
7-month lows.

Grains all traded higher today. Soybeans rose
about 1%, wheat gained 1.8% and corn rose 2.5%.


No major economic
news to report for the U.S. today.

John Lee

Associate Editor