* UK jobs data drive sterling higher
* Australian dollar jumps as inflation pares rate-cut risk
* Canadian dollar drops to more than 4-year low
By Gertrude Chavez-Dreyfuss
NEW YORK, Jan 22 The dollar edged higher on
Wednesday, helped by sharp gains against the Canadian currency
as the greenback's outlook stayed upbeat, with the Federal
Reserve possibly a week away from its next round of reduction in
The U.S. currency jumped to its highest in more than four
years versus the Canadian dollar after the Bank of Canada left
the door open about a possible interest rate cut and said the
unit remained strong despite recent depreciations.
"The BoC policy announcement today was about as dovish as it
could possibly be without moving to an outright easing bias,"
said Shaun Osborne, chief currency strategist, at TD Securities
"We remain bullish on the outlook for the U.S. dollar
against the Canadian dollar. The policy outlook favors more U.S.
dollar strength and more Canadian dollar weakness."
In contrast to the BoC, the Fed's tapering program remained
on track, supporting the greenback overall. Many in the market
expect the Fed to slow its monthly bond purchases to a $65
billion pace from $75 billion at its policy meeting next week.
The dollar index, a measure of the dollar's value against
six major currencies, drifted higher on the day at 81.155
. The index has been trading in narrow ranges all week.
The greenback soared to C$1.1092, its highest since
early September 2009. It was last at C$1.1075, up 1.0 percent.
"The market is still comfortable adding to long positions on
the dollar as the Fed tapering remains on track," said Vassili
Serebriakov, currency strategist at BNP Paribas in New York.
Sterling and the Australian dollar were also big movers on
Wednesday after robust economic numbers that spoke for tighter
monetary policy in their economies. The pound surged to a
three-week high versus the dollar while the Aussie dollar rose
to a one-week peak.
Wednesday's figures showed that UK unemployment slid to
within a whisker of the level at which the Bank of England has
said it might consider a rise in interest rates, driving
sterling - the best performing major currency the past six
months - higher against both the euro and dollar.
Sterling last traded at $1.6579, up 0.6 percent, while the
euro fell 0.7 percent to 81.70 pence.
Regardless of another warning by the UK central bank that it
is in no hurry to raise rates which have been at rock bottom
since 2008, the jobless figures added to a growth picture that
is far brighter than most of mainland Europe.
The largest quarterly rise in inflation in over two years,
meanwhile, has dampened expectations of further cuts in rates in
Australia and helped the Aussie gain almost 1 percent earlier,
all but erasing this year's losses.
AUSSIE RATE CUT VIEW
The Aussie had stolen the limelight in early trade, rallying
against its U.S. counterpart after an unexpected spike in
inflation led investors to cut back bets on another interest
rate cut. The Aussie was last up 0.5 percent at US$0.8854.
The Australian and Canadian dollars are seen weakening in
2014 despite an improving global economy, with their prospects
likely to be tied more closely to shifts in monetary policy at
home than demand for their commodity exports.
Earlier, the Bank of Japan kicked off the central bank
action on Wednesday, holding its policy meeting overnight and
retaining its plan for a 60-70 trillion yen annual rise in
monetary base. The dollar last traded up 0.1 percent at 104.41