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

U.K Growth

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

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

The U.K. currency rallied 10% 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%, while yen fell 7.9% and the dollar declined 0.9%.

“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% 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% 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.”

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