* More dovish FOMC easing could weaken dollar
* Sterling could bounce to September highs
* UK unemployment data unexpectedly falls
By Philip Baillie
LONDON, Dec 12 Sterling hit a five-week high
against the dollar on Wednesday after a better-than-expected UK
jobs report and could gain further if the Federal Reserve
aggressively eases monetary policy.
The Fed's Open Market Committee (FOMC) is expected to
announce a fresh round of bond buying as part of its efforts to
support a fragile economic recovery threatened by political
wrangling over the government's budget.
Traders said the pound could extend gains to hit early
November highs of $1.6176 and even higher if the Fed opts for a
more aggressive quantitative easing than the $45 billion a month
of asset purchases most economists are expecting.
More quantitative easing usually pushes a currency lower as
it increases its supply.
UK data showed the number of people claiming unemployment
benefits fell unexpectedly in November, while the number of
people in work hit a record high, helping lift the pound to a
5-week high of $1.6134.
Sterling was last up 0.2 percent on the day at
$1.6145, up from around $1.6125 before the data was released
with charts showing support around the 55- and 50-day moving
averages at $1.6024 and $1.6032 respectively.
"The Fed has to deliver a lot for the dollar to get a
durable weakening, a more dovish position (than $45 billion)
could see sterling head back towards the (September high) around
the $1.63 level in the coming weeks," said John Hardy, FX
strategist at Saxo Bank.
Some strategists, however, said the pound's rise could be
limited due to weaker UK growth forecasts.
"We still have a negative view on sterling at this stage,
unless the Fed comes out with an Operation Twist replacement
programme which is quite aggressive, adding more than $50/60
billion to the balance sheet," said Geoffrey Yu, currency
strategist at UBS Warburg.
Strategists said with little UK data due this week, sterling
could take its cues from the euro zone and ongoing negotiations
around the U.S. fiscal cliff, a combination of tax hikes and
spending cuts due to kick-in at the beginning of 2013 that
threatens to derail U.S. growth.
Against the euro, sterling was flat at 80.70
pence. The euro hit a near three-week low of 80.35 pence on
Monday after Italian Prime Minister Mario Monti announced his
decision to resign.
With the euro zone struggling from a sharper slowdown than
the UK and austerity and fiscal tightening likely to weigh on
growth for years, BNP Paribas said its quant trading model
suggested a short euro/sterling position.
Meanwhile, hints of policy easing measures from newly
appointed Bank of England governor Mark Carney during a speech
on Tuesday could see investors push sterling lower. Carney who
is now Bank of Canada governor suggested there were benefits
from having flexible inflation targets.
"In the near-term, the take-away from Governor Carney speech
is that he is willing to extend the BoE's aggressive policy
stance if it is considered necessary," Rabobank said in a note.
"This underpins our view that the BoE is likely to announce
further QE this cycle; potentially in time for the February