* Dollar rises against yen and euro before Fed decision
* Fed expected to continue tapering its bond-buying stimulus
* Focus on UK annual budget, sterling recovers vs dollar
(Updates levels, adds Canadian dollar's drop, fresh comments)
By Anirban Nag
LONDON, March 19 The dollar rose against the yen
and euro on Wednesday, buoyed by expectations the Federal
Reserve will look beyond the impact on the U.S. economy of a
harsh winter and further unwind its monetary stimulus.
Some trepidation before Janet Yellen's inaugural policy
review as Federal Reserve chief limited gains, traders said.
The Fed is widely expected to reduce its monthly bond
purchase programme by a further $10 billion at the end of its
two-day meeting. Yellen, widely regarded as a dove, is due to
address a news conference later in the day.
Many in markets expect the Fed to amend its forward guidance
on policy, assuring investors that interest rate hikes remain
distant despite unemployment easing faster than expected.
The dollar edged up 0.15 percent to 101.60 yen,
staying above a one-month low of 101.20 yen hit on March 3.
The euro fetched $1.3920, down 0.1 percent on the day but
not far from last Thursday's 2-1/2-year high of $1.3967.
"The key thing will be whether there will be any change in
the timing of rate hikes by the Fed from next year," said Jeremy
Stretch, head of currency strategy at CIBC World Markets.
"I am not convinced the Fed is ready to materially change
guidance and we will see a very even-handed Yellen. All of which
leaves investors looking to second-quarter U.S. data before
taking fresh positions in the dollar."
The Fed has said it will not raise rates until joblessness
falls to at least 6.5 percent, a pledge policymakers thought
would hold until at least mid-2015. But it hit a five-year low
of 6.6 percent in January, before rising to 6.7 percent in
Expectations Yellen will pursue a broadly dovish stance have
helped rein in U.S. Treasury yields and this, in turn, has
undermined the attraction of the dollar for investors.
The U.S. dollar, though, hit its highest in a month against
the Canadian dollar at C$1.1190. Selling in the
currency gathered pace after Bank of Canada Governor Stephen
Poloz said on Tuesday Canada could face a prolonged period of
sluggish growth and lower interest rates.
FOCUS ON STERLING
Sterling rose 0.2 percent to $1.6644, rebounding
from a one-month low struck on Tuesday and helped by data showed
wages ticking higher and a steadily improving jobs market.
The number of Britons claiming jobless benefits fell more
than expected while wages rose 1.4 percent year-on-year, which
though higher than forecast was still below inflation.
Finance minister George Osborne, due to present the UK
annual budget later on Wednesday, is expected to stick to his
plan to fix the public finances. This will keep the onus on the
Bank of England to keep monetary policy loose to ensure growth.
"In order to keep the pressure on the budget deficit, a
continuation of austerity can be expected from the government,"
said Jane Foley, senior currency strategist at Rabobank.
"However, with the election a little over a year away, some
crowd pleasers are also likely and this could lend the pound
And while the safe-haven yen lost ground, investors remained
cautious over tensions in Ukraine. Anxiety eased somewhat after
Russian President Vladimir Putin said on Tuesday he did not plan
to seize other regions of Ukraine, a day after Crimean citizens
voted to be annexed by Moscow.
(Editing by Nigel Stephenson)