* Sterling hits highest since late September versus dollar
* UK Nov annual CPI holds at 2.7 pct, above forecasts
* High inflation makes further QE from BoE less likely
* Traders cite year-end demand to buy pounds
By Jessica Mortimer
LONDON, Dec 18 Sterling rose to its highest in
more than two and a half months against the dollar on Tuesday
after high UK inflation added to expectations the Bank of
England will avoid further easing for now.
The pound rose as high as $1.6226, its strongest
since late September. More gains could enable it to target the
Sept. 28 peak of $1.6273 and the mid-September high of $1.6310.
It was last up 0.3 percent on the day at $1.6215.
Traders said sterling was also lifted in thin trade by
end-of-year demand to buy the currency from companies looking to
hedge and from central banks.
UK annual consumer price inflation unexpectedly remained at
2.7 percent in November after a surprise jump the month before,
which is likely to reinforce the central bank's concerns about
price pressures proving persistent. The market consensus had
been for inflation to dip to 2.6 percent.
"The idea that there may be no more QE for now has impacted
sterling at the margin," said Michael Derks, strategist at
He added that sterling was also benefiting by default
because of expectations of aggressive easing measures in Japan
hurting the yen and last week's decision by the U.S. Federal
Reserve to loosen policy further weighing on the dollar.
"Sterling has been doing OK because it is one of the least
bad of the major currencies. It is also benefiting from a
perkier performance from the euro, but volumes are low and
relatively small flows are having a greater impact."
A Reuters poll conducted last week showed economists expect
UK interest rates to stay on hold at a record low 0.5 percent
until at least mid-2014.
Investors will look to Bank of England policy meeting
minutes on Wednesday for clues on the chances of UK policymakers
authorising more bond buying.
Quantitative easing is usually negative for a currency as it
increases its supply.
"The (CPI) print could make it more difficult for the BoE to
extend its accommodative stance from here," analysts at Citi
said in a note to clients.
They added, however, that the impact on the pound may be
short-lived, with sterling likely to track movements in the euro
closely. Dips in euro/sterling "could still attract some buyers
The euro was down 0.1 percent at 81.27 pence,
off Monday's near two-month high of 81.55 pence.