Sterling close to its 23-month high versus euro, eyes BoE

* Graphic: World FX rates in 2020

* Graphic: Trade-weighted sterling since Brexit vote

Jan 28 (Reuters) - Sterling on Friday edged up against the euro, just off its 23-month high, as investors expect the Bank of England to raise rates next week and follow a much faster path of monetary tightening than the European Central Bank in 2022.

Analysts argued that the hawkish BoE stance would boost the pound, despite the tightening plans from the U.S. Federal Reserve, providing some defence also against the dollar.

“Key rates that rise by more than 25bp (at next week’s policy meeting) would help sterling if BoE governor Andrew Bailey were able to convince the market that the BoE has a plan,” Commerzbank analysts said, describing last year’s BoE announcements as “fickle.”

The BoE’s decisions on rates wrong-footed markets in November and December 2021.

Sterling was up 0.1% versus the euro at 83.20 pence, just off its 23-month high of 83.065 pence touched on Jan. 20.

Investors also focused on the BoE’s bond buying programme as the bank at its August 2021 meeting said the Monetary Policy Committee intended to begin reducing the stock of purchased assets once Bank Rate had reached 0.5%.

“We also expect discussions around active QT to gather momentum over the next few months,” Deutsche Bank analysts said.

“While not our base case at this stage, a slightly more aggressive wind-down of the Bank’s balance sheet should not be discounted and looks a little more likely,” they added.

The dollar was higher on Friday, heading for its best week in seven months as markets priced in a year of aggressive hikes in U.S. interest rates.

The pound was flat against the greenback at $1.3375.

Political risks remained in the background after British Prime Minister Boris Johnson on Thursday re-committed to publishing in full an internal report into boozy parties and social gatherings held at his Downing Street residence during coronavirus lockdowns.

Britain hopes to secure significant progress in post-Brexit trade talks with the European Union by February and win the support of pro-British unionists in Northern Ireland opposed to the current arrangements, Foreign Secretary Liz Truss said. (Reporting by Stefano Rebaudo Editing by Mark Heinrich)