* More dovish FOMC easing could weaken dollar
* Sterling could bounce to September highs
* Unemployment data could show UK weakness
By Philip Baillie
LONDON, Dec 12 Sterling held near a five week
high against the dollar on Wednesday ahead of an expected
expansion by the Federal Reserve if its asset purchase scheme,
potentially weakening the U.S. dollar broadly.
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.
Investors, however, will also look to UK jobs data due at
0930 GMT for signs of weakness in the economy after the Olympics
fillip, potentially weakening the pound. A Reuters forecast
shows the unemployment rate is expected to be unchanged at 7.8
"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.
Sterling was flat on the day $1.6105, off a 5-week
high of $1.6131 hit last week, with charts showing support
around the 55- and 50-day moving averages at $1.6024 and $1.6032
Against the euro, sterling held flat at 80.74
pence. The euro hit a near three-week low of 80.35 pence on
Monday on political turmoil in Italy. Near-term support was seen
at the 55-day moving average at 80.57 pence.
With the euro zone struggling with a sharper slowdown than
the UK and austerity and fiscal tightening likely to weigh on
growth for years, BNP Paribas said model suggested a short
"We have initiated a quant-based euro/sterling short trade
recommendation at 80.65 pence, targeting 79.15 pence and with a
stop at 81.40 pence," they said in a note.