The dollar has not remained insensitive to this threat

The "minutes" of the last meeting of the US Federal Reserve left as a bitter aftertaste to markets. May 10, the institution, wishing to retain full its margin of manoeuvre, had well left the door open to possible rate hikes. But the content of the discussions (summarized in the minutes) pushed stakeholders to take more into account the possibility of new tightening of monetary policy in the United States.

The possibility of a tour of screw at the end of the month is now integrated to 76 by the market, against 58 probability before the publication of the minutes of the Federal Reserve. The dollar has not remained insensitive to this threat. The euro slipped to 1,2724 dollar yesterday afternoon and the greenback climbed to 113,38 yen.

"The minutes clearly show that inflationary risks take a central place in the minds of the members of the Fed." "Especially, the latter have clearly indicated that this risk was still strong enough to eventually justify further increases in rates", said Julie Lebovitch, an economist at Ixis-CIB. Underlying inflation exceeded the forecast of the institution, which also specified that "the recent retreat of the dollar was another factor that could add to inflationary pressures."

Ready to intervene

However, the Federal Reserve also insisted on the moderation of growth of GDP, consequence of the slowdown in the housing market, lower consumption, but also consequence of monetary policy initiated since June 2004. In fact, while the members of the Federal Reserve questioned the extent of the motion still required, if ever it is still necessary, proposed last month approaches focused on the status quo and an increase of 50 basis points. For Julie Lebovitch, the last release of the Federal Reserve still leaves the door open to a break in the cycle of rising interest rates. But if the prospects for price were to deteriorate, the monetary policy Committee has reaffirmed that it was ready to intervene.

For Philippe Waechter, Director of economic studies at Natexis Asset Management, "the Fed, at its last meeting, wanted a schema in which the probability of an increase in June was higher than status quo." "However, the Federal Reserve, which must arbitrate between a risk on growth and an increased risk of inflation expectations, is in the expectation and it feels that it is close to its high point." The data to be published by the end of the month should guide the discussions of the meeting of the Federal Reserve later this month. The employment report us for the month of may, to be published today, as well as data on prices should retain the attention of stakeholders.

Relaxation bond

Yesterday, in mid-afternoon, the ISM manufacturing index for the month of may has disappointed. Expected withdrawal to 55.7 points after 57.3 in April, the flag point now to 54.4 points. "If the activity of this report part is weakened, with the General Index falling to its lowest level since August 2005, inflation remains subject of concern", commented James Knightley, at ING. The prices paid index reached last month its highest level since October 2005, 77 points. Food a little more expectations of a rate hike this month across the Atlantic.

But, to this observer, "as that activity will slow, inflationary pressures should gradually fade with the possibility for the Federal Reserve to reduce interest rates". However the ISM index is not the only indicator to point to a likely slowdown. The real estate market statistics were yesterday also withdrawal. Their accumulation caused a slight relaxation of us state bond yields and a reverse of the greenback. At the time, the euro is exchanged yesterday evening 1,2812 dollar, against 1,2829 on Wednesday evening, and the greenback was worth more than 112,53 yen.