* Sterling hits highest level vs dollar since Oct. 5
* Lifted in thin trade by Middle East, corporate demand
* Pound jumps versus weak yen, recovers against euro
By Philip Baillie
LONDON, Dec 17 Sterling hit a two-and-a-half
month high against the dollar on Monday and traders said it was
lifted in thin trading by demand from Middle East investors and
companies looking to hedge.
Sterling rose to $1.6217, its highest level since
early October, taking it just shy of chart resistance at
$1.6218, the Oct. 5 high.
The pound last traded up 0.3 percent on the day at $1.6206
and more gains could take it towards the September peak of
Analysts said the pound could gain further against the
dollar if U.S. politicians cannot head off the tax rises and
spending cuts due to kick-in at the beginning of 2013.
"Sterling tends to be caught in the middle of the euro and
the dollar but we are seeing some underpinned strength, which
(today) seems to be flow driven," said Daragh Maher, currency
strategist at HSBC Markets.
Traders said demand from Middle East investors buoyed the
pound in early trade. Later, demand from corporates also
surfaced, while one trader reported Asian names buying.
Investors will look to inflation data on Tuesday and Bank of
England policy meeting minutes on Wednesday for clues on the
chances of UK policymakers authorising more bond buying. Retail
sales data is also due on Thursday.
Melinda Burgess, currency strategist at RBS, said she
expected retail sales to lift the pound if they beat forecasts.
"Generally the BoE is remaining dovish in terms of their
stance but sterling will probably react more to retail sales
this week, which is expected to pick up and could show a
positive bounce," she said.
Burgess said sterling could fall to $1.56 in the first
quarter of 2013, however, if U.S. budget concerns are soothed
and weaker UK growth is exposed.
The pound also recovered against the euro, which was down
0.1 percent at 81.29 pence, having hit a near
two-month high in Asian trade of 81.505 pence.
Slightly stronger UK inflation and retail sales data may add
to expectations that the BoE will hold off from more
quantitative easing for the time being, which would also help
lift sterling, analysts said.
Quantitative easing is usually negative for a currency as it
increases its supply.
Jane Foley, senior currency strategist at Rabobank, said the
pound had benefited against the dollar in recent sessions in the
wake of last week's monetary easing in the United States.
Against the Japanese yen, the pound rose to its
highest level since April 2011 at 136.37 yen. The yen weakened
broadly after the weekend election victory of Shinzo Abe's
conservative Liberal Democratic Party, which is committed to
aggressive monetary easing.