London, March 17 (Bloomberg) -- The British pound rose against the dollar on speculation the U.S. Federal Reserve may reduce interest rates at its meeting tomorrow to boost a faltering economy as the country prepares for war. U.S. consumer confidence fell to its lowest in 10 years last month while retail sales declined the most since November 2001. Signs of economic weakness and the prospect of a U.S.-led war against Iraq raised speculation the Fed will pare its main borrowing rate from a 42-year low of 1.25 percent, analysts said. ``We expect a 25 basis point rate cut by the Fed,'' said Mark Austin, chief currency strategist at HSBC in London. ``That will focus investors' attention back to how weak the U.S. economy is looking,'' which will help the pound. A basis point is 0.01 percentage point.
The pound rose to $1.5896 at 6:05 a.m. in London from $1.5825 yesterday. It has fallen 0.9 percent against the dollar in the past five days. The U.K. currency was at 68.11 pence per euro from 67.83. Demand for the dollar also may be hurt after U.S. President George W. Bush said the United Nations has today to agree on a resolution demanding Iraq's disarmament or the U.S. and the U.K. will go to war without UN support.
Lehman Brothers Holdings Inc., the world's fourth-largest investment bank, said Friday the Fed probably will cut its target interest rate to 0.5 percent by May. Policy makers will lower the rate by a half-percentage point to 0.75 percent in April, Lehman economists said. The Fed will follow that with a quarter- percentage point cut to 0.5 percent at a meeting May 6, they added. Some analysts said the dollar will benefit once a war with Iraq breaks out because many investors, who have been betting on a falling dollar in recent weeks, may seek to reverse those trades once military action begins. //www.quote.bloomberg.com