Fed Holds Overnight Rates

By John Lee

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 weather.

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.

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