On Tuesday, dollar bulls were hoping the Federal Reserve would take a hawkish stance on inflation and signal that an interest rates hike.

That didn’t happen. Instead, the Fed issued a fairly neutral statement. It said “downside risks to growth remain” – dropping a reference in June’s statement to “diminished” dangers – and price increases are of “significant concern.”

Chris Gaffney in The Daily Reckoning says the statement indicates the Fed realizes it will be forced to leave rates untouched. This leaves Mr. Market is to focus on the European Central Bank. Expect more inflation fighting from Jean-Claude Trichet and his pals…

There’s been a return to risk aversion overnight, as some news from the United Kingdom has reignited the fears that the banks may still be sitting on a ton of bad debt… Of course, as Pfennig readers, you already know this…

Yesterday, I left you with the thought that the London traders had been buying dollars since they arrived back from their three-day Holiday weekend. The U.S. traders did the same… And I believe profit taking was the order of the day.

Yellen stated that she ‘would be pleased’ if the economy was strong enough to raise rates by year-end. That’s all nice and sweet, Ms. Yellen… But did you realize you would move the markets with that ‘wish upon a star’?

The dollar is a bit softer this morning going into the Jobs Jamboree, and rightly so, given the forecast. However, the dollar is still swinging a mighty hammer and I’m a bit perplexed by this.

With the dollar weakness overnight, gold has bounced back over $5. Oil has pushed back to within spittin’ distance of $119. Could this be the beginning of the next leg up for the commodities against the dollar?

German Business Confidence…came out softer than expected in April, falling from 104.8 in March to 102.4. That was quite a tumble in business confidence, and apparently wipes out the previous three months of stronger confidence.

At best, the ECB doesn’t sound like they are ready to CUT rates any time soon… So, the euro gets to hold on to its positive interest rate differential to the dollar…

The problem here is that Fed Head Fisher is a Lone Ranger. Big Ben doesn’t share his thoughts, and when the Fed meets later this month and cuts rates, Fisher will probably be the lone wolf on dissenting.

The U.S. rates are going lower, and you can take that to the bank! OK, well…Maybe the legal beagles won’t like me saying that, so, let’s just say, I think that you should think that U.S. rates are going lower.