Hawkish Fed Minutes Released Today

U.S. 10-year Treasury bond prices were
fractionally lower today, after the Fed minutes from the March meeting were
released. The minutes showed that Fed members agreed that higher rates
could be a necessity in the future to control inflation, despite the removal of
key inflationary wording in the actual announcement. Interest rate futures
show about a 10% chance of a rate cut by August, illustrating that not many
investors are worried about cuts coming any time soon.

The dollar rose against the euro and the yen
today, after the Fed minutes from the latest meeting showed an agreed concern that
rate hikes could become necessary to control inflationary pressures. The
hawkish tone of the minutes helped to boost the dollar off recent lows against
the euro, and push towards monthly highs against the yen. The currency
market favors currencies backed by inflationary, positive-growth economies,
which Europe has consistently proven itself to be. The U.S. and Japan have
both had trouble in keeping up the pace, but the Fed minutes released today
helped bolster positive U.S. sentiments.

Crude oil closed up fractionally today, after a
report showed that U.S. gasoline reserves declined for the ninth straight week.
Actual crude supplies rose, but crude prices rose on the continually falling
gasoline reserves. Crude sold off hard on Monday, as the Iran/UK hostage
situation ended, and traders became less fearful of Iran removing its oil supply
from the world market. Natural gas fell fractionally, erasing major gains,
on trader speculation that tomorrow’s gas inventory report will show another
jump in gas supplies.

Gold fell fractionally today, hovering near
monthly highs. Gold usually moves inversely to the dollar and with crude;
high prices could be attributed to both a volatile energy sector, and dollar
weakness against the euro. Traders normally buy gold in the face of dollar
weakness, and to hedge against rising energy prices. Copper prices rose
just over 1%, and are trading around 6-month highs.

Grains traded mixed today. Wheat fell about
0.3%, corn dropped about 2.4% and soybeans rose about 0.5%.


Fed minutes from
the March meeting showed agreement that rate hikes could become necessary to
contain inflation.

John Lee

Associate Editor