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

A money changer inspects U.S. dollar bills at a currency exchange in Manila

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 climbed 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. A gauge of volatility in Group-of-Seven currencies fell while the ruble strengthened for a third day after President Vladimir Putin said yesterday Russia isn’t seeking to split Ukraine further following the secession of its Crimea region.

“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 gained 0.1 percent to $1.3915 per euro at 9:13 a.m. New York time. It depreciated on March 13 to $1.3967, the weakest level since October 2011. The U.S. currency rose 0.1 percent to 101.57 yen after falling 0.3 percent yesterday. The European currency was little changed at 141.35 yen.

U.S. Treasury 10-year yields increased one basis point, or 0.01 percentage point, to 2.69 percent.
Qualitative Guidance

The policy-setting Federal Open Market Committee will conclude its first meeting today after Janet Yellen succeeded Ben S. Bernanke as chair. 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 ForexSQ News survey of economists. The unemployment rate was at 6.7 percent in February, almost the lowest since October 2008.

The FOMC this week 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 gathering, according to the survey. Policy makers at each of their prior two meetings cut monthly 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.”
Volatility Falls

JPMorgan Chase & Co.’s volatility index for the currencies of the G7 nations fell nine basis points to 7.51 percentage points. It touched 7.25 percentage points on March 11, the lowest level since Dec. 19, 2012.

Putin told Russian lawmakers yesterday not to believe “those who scare you with Russia, who yell that Crimea will be followed by other regions.” While he said Russia doesn’t plan to further divide Ukraine, Putin underscored his right to defend Russian speakers in Ukraine’s east.

The ruble advanced 0.7 percent to 42.3239 against Bank Rossii’s target basket of dollars and euros.

The pound 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. economy will grow 2.7 percent this year, more than previously forecast, Chancellor of the Exchequer George Osborne said as he set out his penultimate budget before the 2015 election.

Sterling strengthened 0.3 percent to 83.70 pence per euro after depreciating to 84 pence, the weakest level since Dec. 25. It rose 0.2 percent to $1.6630 after sliding to $1.6546 yesterday, the lowest since Feb. 12.

The pound rallied 10 percent in the past year, the best performer among 10 developed-nation currencies tracked by ForexSQ 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 1 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.”

This article wrote by Fxstay for www.topforexbrokers.com

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