LONDON: Sterling dipped slightly against a broadly firmer dollar on Tuesday before US payrolls data, with some investors betting that a stronger-than-expected reading could fuel talks on when the Federal Reserve will likely trim its stimulus.
The move lower in the pound was, however, limited as the currency has been supported by the recent string of solid British data and analysts said it could have further to go.
US non-farm payrolls data for September is due at 1230 GMT.
Sterling was down 0.1 percent at $1.6125, inching away from Friday's peak of $1.6224, its highest level since Oct. 3. The currency could, however, target chart resistance at the Oct. 1 peak of $1.6260 and the 2013 high of $1.6380.
Analysts said the pound's pullback was natural given last week's steep ascent when it clocked its best weekly performance in a month but added that dips will be marginal.
"Sterling/dollar is consolidating at the moment after last week's moves," said Niels Christensen, FX strategist at Nordea.
"Non-farm payroll data would have to very strong for it to have a lasting positive impact on the dollar as at the moment we still have a negative dollar environment due to the recent US budget situation."
Markets remained concerned about the negative impact on the US economy of the 16-day government shutdown this month. This could compel the Fed to delay reducing the pace of asset purchases until the first or even second quarter of 2014.
"A good jobs number today will not do a great deal to the dollar. We could see sterling move a tad lower, just below $1.61 but I don't see it moving below $1.60," Christensen said.
Sterling has been supported by the recent flurry of positive British data which has added to the view that UK interest rates are likely to rise earlier than the Bank of England has flagged.
Data on Tuesday showed that Britain's finances improved in September, helped by higher tax revenues as the economy gets better.
The Bank of England's deputy governor, Charlie Bean, said on Tuesday that there were signs that a UK economic recovery was gaining traction and will likely be sustained.
The sterling overnight interbank average (SONIA) rate curve showed investors were pricing in the risk of an interest rate hike within 18 months., well before the late 2016 timeframe that the BoE has flagged.
Later this week markets will focus on minutes of the BoE's October meeting and then on Friday's preliminary third-quarter gross domestic product data, which is forecast to show the economy grew by a quarterly rate of 0.8 pct.
Morgan Stanley analysts said sterling could re-test the $1.6260 highs and even the $1.6380 January peak but added that they looked at such rebounds as renewed selling opportunities.
They warned that "while recent survey data, including the PMIs, have been strong, the real activity data suggest caution with regards to Friday's 3Q GDP data."
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