LONDON, Nov 1 (Reuters) - Sterling dipped against a broadly stronger dollar on Thursday as expectations of a further interest rate cut from the Federal Reserve were pared back, boosting the U.S. currency.

However the pound stayed close to its 26-year high set on Wednesday against the greenback as the U.S. Federal Reserve, as expected, trimmed rates by 25 basis points to 4.5 percent while investors in the UK expect interest rates to remain on hold at 5.75 percent.

The high yielding pound benefits from the carry trade where investors borrow low yielding currencies like the yen to fund investments in assets that deliver higher returns.

With rates set to stay on hold, analysts point to continued sterling strength.

"I think it's going up further, $2.10 is certainly a possibility," said Neil Mellor, currency strategist at Bank of New York Mellon.

At 0912 GMT, the pound was down 0.15 percent at $2.0783 after hitting its highest level since 1981 at $2.0819 the previous session.

The euro was trading down 0.15 percent at 69.46 pence. Against the yen, the pound was up 0.2 percent at 240.49.

Analysts will be watching the UK PMI manufacturing index, released at 0930 GMT on Thursday, and retail sales growth figures at 1100 GMT for any further clues on the outlook for UK interest rates.

Source supplied by: Reuters