Dollar rises before Fed; pound climbs on Central Bank’s outlook

The U.S. Dollar Index (NYBOT:DXH14) 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% 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% to 101.56 yen after falling 0.3% yesterday. The European currency was little changed at 141.30 yen.

U.S. Treasury 10-year yields (CBOT:ZNM14) increased three basis points, or 0.03 percentage point, to 2.7%.

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% 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% 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% 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% 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% in the three months through January, the same as in the final quarter of 2013.

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