The Fed did indeed hold steady on rates, leaving the Fed funds target at 2.0% and signaling the end of the easing cycle. As we expected, the policy statement seemed to place a greater emphasis on inflation, but fell short of suggesting it was the dominant risk.

The statement was less hawkish than many were anticipating and expectations of a Fed rate hike later this summer have been pared further. Fed funds futures now show the odds of an Aug rate hike at 22%, down from 38% yesterday and 75% earlier in the month.

We maintain that a rate hike before Dec is unlikely. In fact, we may now be looking into Q1-09 before the Fed looks to raise interest rates.

The FX market is also in the process of reversing out rate hike expectations and the dollar index has fallen back below 73.00. You may recall that the DX rallied from just above 72.00 to just above 74.00 in the wake of a rather hawkish statement on inflation from Fed Chairman Bernanke earlier in the month. A retreat back to the 72.00 zone is now considered likely.

The EUR-USD rate has regained the 1.5700 level, well on its way to recapturing all of the losses inspired by the Bernanke comments from 09-Jun. While those hawkish comments weren't echoed in yesterday's policy statement, Bernanke's counterparty at the ECB is maintaining his hawkish tone.

With a US rate hike less likely in the short-term and an ECB rate hike in Jul all but assured, we expect the euro to challenge key resistance marked by the May/Jun highs at 1.5814/43. If this level gives way, the all-time high at 1.6020 would be back in play.

If the long-term downtrend in the dollar does indeed start to re-exert itself, we would expect gold to push decisively back above $900. In the wake of the recent bounce off the 200-day moving average, a short-term challenge the 100-day moving average at 915.59 is likely. Recent highs at 905.05/907.90 have already given way.

The Fed did comment in yesterday's statement that risks to growth have "diminished somewhat." That's a rather vague assessment of said growth risks. Given that housing prices continue to deteriorate and consumer sentiment is near record lows, I would say that the risks to growth remain considerable.

The Fed did note that, "labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction and the rise in energy prices are likely to weigh on economic growth over the next few quarters."

Nonetheless, Q1 GDP (final) was revised higher once again to 1.0%, from 0.9% previously. This revision was widely expected. We can argue the point that the level of inflation factored in to GDP is grossly understated. However, officially...no recession...yet.

US initial jobless claims for the week ended 21-Jun came out unchanged at 384k. The market was looking for a decline of about 6k claims. That makes three consecutive weeks of jobless claims over 380k. There is some speculation that the Midwest flooding may have played a role in the higher than expected claims number.

With the dollar back on the defensive, oil is rebounding from yesterday's surprise jump in inventories. Crude stockpiles in the week ended 20-Jun rose 800k bbl, the first build in six weeks.

OPEC's president, Chakib Khelil predicted fresh highs in oil this summer, suggesting potential was to $150/$170bbl. Mr. Khelil cited the weak dollar as the primary culprit in soaring energy prices. Significant geopolitical concerns in the Middle East and Africa are playing a considerable role as well.

Higher oil prices are generally supportive to the gold market. If the gold/oil ratio remains at its present level of 6.6, $150 oil would put gold at $990.

Despite all the ranting and raving on this side of the pond about the role speculators have played in driving oil higher, ECB president Trichet disagrees. Speaking at a European parliament hearing on Wednesday he said, "It is not the futures market itself that is the problem. The problem is that this is across-the-board reallocation of portfolios that give more weight to commodities in general."

Guilty as charged. I'll confess that I've reallocated a significant portion of my portfolio from stocks to commodities in recent years. When the USAGOLD - Centennial Precious Metals Survey of Investments comes out next week, the reasons will be obvious. Can you guess what asset outperformed the broader measure of commodities?

Gold Market Movers:

US existing home sales for May at 4.99M. Market was looking for an uptick to 4.950M from 4.890M in Apr.

US Q1 GDP (final) revised higher to 1.0% from 0.9%.

US initial jobless claims for the week ended 21-Jun unch at 384k.

Eurozone M3 money supply for May steady at 10.5% y/y growth rate.

German import prices for May surged 7.9% y/y, versus 5.7% y/y in Apr.

Russia piling up gold and currency reserves

Trichet reinforces expectations of ECB rate rise

Global stocks fall amid financial sector problems

Deleveraging, now only in early stages, will transform the banking industry