Dollar Rises Before Fed; Pound Climbs on Central Bank’s Outlook

The dollar advanced against most of its 16 major peers amid bets the Federal Reserve will further reduce its bond-buying stimulus and link guidance on when it will raise interest rates to a range of economic indicators.

The pound strengthened after the Bank of England said there’s risk of further gains in the currency and a government report showed the jobless rate was at almost a five-year low. Canada’s dollar dropped amid speculation the central bank may cut interest rates, while India’s rupee rose the most in two weeks on economic optimism. A gauge of volatility in Group of Seven currencies fell.

“The market is being a little prudent ahead of the decision, and that’s leading yields a little bit higher, dollar a little higher,” Sebastien Galy, a senior currency strategist at Societe Generale SA in New York, said in a phone interview of the Fed meeting.

The dollar appreciated 0.1 percent to $1.3914 per euro at 12:44 p.m. New York time. It sank on March 13 to $1.3967, the weakest level since October 2011. The U.S. currency rose 0.1 percent to 101.56 yen after falling 0.3 percent yesterday. The European currency was little changed at 141.30 yen.

U.S. Treasury 10-year yields increased three basis points, or 0.03 percentage point, to 2.7 percent.

JPMorgan Chase & Co.’s G-7 volatility index fell 11 basis points to 7.47 percentage points. It touched 7.25 percentage points on March 11, the lowest level since Dec. 19, 2012.

Ruble Advances

The ruble strengthened for a third day as Russia pushed on with its annexation of Ukraine’s Crimea region and investors wagered the impact of Western sanctions will be mild. The currency gained 0.8 percent to 42.2657 against Bank Rossii’s target basket of dollars and euros.

The Canadian dollar approached its weakest level since 2009 after central-bank Canada Governor Stephen Poloz said yesterday he “cannot” rule out lowering the nation’s benchmark 1 percent interest rate. Poloz said in a speech Canada’s long-term economic outlook will be constrained by an aging population that’s driving up savings and stemming demand.

The loonie, as the currency is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.3 percent to C$1.1173 per U.S. dollar. It reached C$1.1199, the weakest since Jan. 31, when it touched the lowest level since July 2009.

Rupee Gains

The rupee rose 0.4 percent to 60.9550 per dollar on optimism foreign investors will boost holdings of Indian assets as inflation eases and deficits narrow.

Global funds bought a net $959 million of Indian stocks this month, exchange data show. A report last week showed consumer prices rose the least in two years, and the government has predicted shortfalls in the current account and public finances will shrink.

Speculation the nation’s main opposition party will win in next month’s general elections also sent the rupee higher, pushing it toward 40 to 45 per dollar, from 61.19 on March 14, according to Adam Gilmour, Citigroup Inc.’s head of Asia-Pacific currency and derivatives sales.

Sterling rose from a three-month low versus the euro after minutes of the Bank of England Monetary Policy Committee’s March 5-6 meeting said the strong U.K. currency is damping inflation. The Office for National Statistics said the jobless rate measured by International Labor Organization methods was 7.2 percent in the three months through January, the same as in the final quarter of 2013.

U.K Growth

The U.K.’s economy will grow 2.7 percent this year, more than previously forecast, Chancellor of the Exchequer George Osborne said as he set out his budget.

The pound strengthened 0.4 percent to 83.63 pence per euro after depreciating to 84 pence, the weakest level since Dec. 25. It rose 0.3 percent to $1.6635.

The U.K. currency rallied 10 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as the strengthening economy boosted bets the central bank will increase interest rates sooner than it anticipates. The euro gained 7.9 percent, while yen fell 7.9 percent and the dollar declined 0.9 percent.

“The BOE is suggesting that a higher currency is taming inflation expectations,” Neil Jones, head of European hedge-fund sales at Mizuho Bank Ltd. in London, wrote in an e-mailed note. “Perhaps the need to hike rates is thus reduced. I would suggest some further gains for the pound but no runaway appreciation.”

Fed Purchases

The policy-setting U.S. Federal Open Market Committee will conclude its first meeting today since Janet Yellen succeeded Ben S. Bernanke as chair last month. The central bank will scrap its 6.5 percent jobless-rate threshold in favor of qualitative guidance for signaling when it will consider raising the benchmark rate, according to a Bloomberg News survey of economists. The unemployment rate was at 6.7 percent in February, almost the lowest since October 2008.

The FOMC will also announce a cut in monthly bond purchases by $10 billion, to $55 billion, and continue reductions at that pace at every meeting before announcing an end to the buying at its Oct. 28-29 meeting, according to the survey. Policy makers at each of the past two meetings cut purchases by $10 billion.

“The market would be unwilling to be too aggressive position-wise ahead of the Federal Open Market Committee,” said Neil Mellor, a currency strategist at Bank of New York Mellon in London. “That’s the biggest potential catalyst of the day. If there’s no tapering, and it clearly is the presumption in the market that it will go ahead as planned, that will be a big negative for the dollar.”

To contact the reporters on this story: Andrea Wong in New York at awong268@bloomberg.net; John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Greg Storey, Kenneth Pringle

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.