Fed Holds Overnight Rates

U.S. 10-year Treasury bonds fell today, after the
Fed kept overnight rates at 5.25%, and re-emphasized the inflation is the
primary concern. Bonds typically fall on positive economic news and rise on
negative news, so it is clear that traders took the Fed’s stance as a good thing
for the economy. Tomorrow’s ECB and BoE announcements could move U.S. bonds
more, so watch for volatility for the rest of the week.

The dollar was close to flat against the euro
and the yen today, after the Fed kept overnight rates at 5.25%, and reiterated
that inflation is the U.S. central bank’s primary concern. Action was light
today across the majors, as the ECB announces rates for Europe tomorrow, in
addition to the Bank of England setting rates for the U.K. The U.S. dollar
managed a bounce against the Canadian dollar, but gave up some gains through
the day. The loonie has been surging against the dollar on M&A deals with
Canadian companies, but today’s Fed announcement seemed to boost the dollar.

Crude oil futures fell over 1% after the
Energy Department reported unexpected gains in U.S. oil inventories. Crude
looks to be pushing back towards its $60 watermark, which often stands as key
psychological support. U.S. refineries are usually shut down during this time
of the year, to clean and repair the machines to prepare for summer, a period
of high demand. With the refineries off, crude stockpiles have been building
for around a month. Natural gas futures rose over 1% as utility companies buy
up gas to be prepared for the spike in demand that usually accompanies warm

Gold futures fell about 0.8%, on speculation
that high prices will drive down demand. Gold usually trades inversely to the
dollar and with oil; today gold fell in-line with crude, but investors felt
that the drop was due to gold’s high prices. Copper futures fell over 1% on
concern that China demand will slow during the second half of the year.

Grains gained today. Soybeans rose 1.2%, corn
gained about 0.6% and wheat rose fractionally.


The U.S. Fed kept
overnight rates at 5.25% today.

John Lee

Associate Editor