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FOREX-Dollar firms before Fed verdict, all eyes on Yellen debut
March 19, 2014 / 8:56 AM / 4 years ago

FOREX-Dollar firms before Fed verdict, all eyes on Yellen debut

* Dollar rises against yen and euro before Fed policy decision

* Fed expected to continue tapering its bond-buying stimulus

* Focus on UK jobs data, annual budget (Updates levels, adds comments)

By Anirban Nag

LONDON, March 19 (Reuters) - The dollar rose against the yen and euro on Wednesday, drawing comfort from expectations the Federal Reserve will further unwind monetary stimulus, looking beyond the impact on the economy of a harsh winter.

Some trepidation before Janet Yellen’s inaugural policy review as Federal Reserve chief will keep gains muted, traders said.

The Fed is widely expected to reduce the size of its monthly bond purchase programme by a further $10 billion at the end of its two-day policy meeting. Yellen, widely regarded as a dove, is due to address a news conference later in the day.

Most are focused on the Fed’s forward guidance on policy. Most expect it to assure investors that rate hikes are a long way off despite the unemployment rate easing faster than expected.

The dollar edged up 0.2 percent to 101.625 yen, staying above a one-month low of 101.20 yen hit on March 3. The euro fetched $1.3917, down 0.1 percent on the day but not far from Thursday’s peak of $1.3967 - a 2-1/2-year high.

“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 would not raise interest rates until joblessness fell 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 February.

Expectations Yellen will pursue a broadly dovish stance have helped rein in U.S. Treasury yields, which in turn has undermined the attraction of the dollar for bond investors.

“Many investors had probably expected the dollar to strengthen this year because the U.S. economy looked in better shape than others,” said Katsunori Kitakura, associate general manager of market making at Sumitomo Mitsui Trust Bank.

“But their positioning has probably been damaged by the Ukraine crisis and poor economic data due to bad weather, and that’s probably a reason for the dollar’s struggles recently.”

UK FOCUS

Some of the focus in Europe will be on the British pound. It was up 0.1 percent at $1.6615, with more gains likely if UK jobs data at 0930 GMT shows more signs of robust recovery.

The number of people out of work is expected to have fallen by another 25,000. Wages are expected to have risen 1.2 percent year-on-year - an increase but well below inflation.

“Attention will be on wage growth and that along with a good jobs number could push sterling higher,” said CIBC’s Stretch.

Later, attention will shift to the annual UK budget. Finance minister George Osborne is expected to stick to his tough plan to fix the public finances and this will keep the onus on the Bank of England to keep monetary policy loose to ensure growth.

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. (Additional reporting by Masayuki Kitano in Singapore; Editing by Nigel Stephenson)

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