Sterling rises on hopes U.S. taper put off till 2014

LONDON Mon Dec 9, 2013 12:08pm EST

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LONDON Dec 9 (Reuters) - Sterling rose against the dollar on Monday as investors bet strong U.S. jobs figures would not persuade the Federal Reserve to start cutting back its huge bond-buying programme this month.

The pound rose 0.3 percent to $1.6388, edging back towards the $1.6443 it hit last week - its highest since August 2011.

Sterling has rallied since the summer as better-than-expected UK economic data - including strong house price data on Friday - has added weight to the view that interest rates may rise earlier than previously expected.

Better-than-forecast U.S. jobs numbers on Friday were not enough to convince markets the Fed would begin tapering its $85 billion-a-month of monetary stimulus before March, pushing U.S. debt yields lower and dragging the dollar down.

"Payrolls were positive for risk, but not strong enough for a taper as early as December," said Nawaz Ali, UK market analyst at Western Union. "The dollar has come under pressure, which is good for the euro and sterling.

"The question is, how far do we want to take cable before the year-end? With tapering put off ... we've still got a few months of party time."

Cable is the exchange rate between sterling and the dollar.

The euro was 0.2 percent lower against the pound at 83.73 pence.

Trading volumes of sterling-dollar and euro-sterling were both well below average levels over the past month.

Sterling also got a boost on Friday from news that house prices rose at their fastest pace in more than six years in November.

But the pound faces testing data next week: inflation and unemployment numbers and minutes from the Bank of England's Monetary Policy Committee, said Western Union's Ali. Sterling could rise to $1.65 or $1.655 by the end of the year, he said.

"Fundamentally the environment remains very supportive for sterling for the time being," said Stephen Gallo, European head of FX strategy at BMO Capital Markets. "There's a lot of (capital) flows that, if they're not going into the dollar, have got to go somewhere."

However, Gallo said he expected sterling to drop to $1.55 by the middle of next year as the Bank of England's so-called 'macroprudential tools' - for instance, limiting the size of a loan relative to the value of a property in order to cool house price growth - weigh on the currency.

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