* Canadian dollar on defensive as oil prices fall further
* Euro firms on Reuters report ECB wary of more action
* Sterling awaits BOE’s first policy review of 2016
By Jemima Kelly
LONDON, Jan 14 (Reuters) - The euro gained around half a percent against the dollar on Thursday after Reuters reported that European Central Bank policy makers are sceptical about the need for further policy action in the near term.
Oil-rich Canada’s dollar fell to its lowest level since April 2003 with a further slide in crude prices expected to undermine the Canadian economy, fuelling speculation that the Bank of Canada could cut interest rates as early as next week.
The ECB also meets next week with the session expected to be relatively uneventful, with the big test coming when the ECB releases its initial 2018 growth and inflation forecasts on March 10.
But some of the five central bankers who spoke to Reuters said that even if these forecasts were to be revised downward, the ECB should not respond immediately.
Rate-setters remain wary about further action, even if that requires them to temporarily turn a blind eye to the impact of falling oil prices or the fact that inflation has been below the ECB target for three years.
The euro gained around half a percent after the article was published, touching a three-day high of $1.0937.
”It decreases expectations of the ECB doing more in the short term,“ Credit Agricole FX strategist Manuel Oliveri said in London. ”Expectations had again risen - on the back of weaker commodity price developments and their impact on inflation - that the ECB could turn a bit more dovish next week.
“But it cannot be excluded that (ECB chief Mario) Draghi sounds more dovish next week, regardless of such stories.”
The European Central Bank will be publishing the minutes from its December meeting at 1230 GMT.
The loonie - traders’ nickname for the Canadian dollar - fell to C$1.4389 against its U.S. counterpart as benchmark Brent crude hit a new 12-year low. Canadian heavy crude also collapsed to around $15 a barrel this week, the lowest level since the benchmark was introduced in 2004.
“Negative oil price momentum is negative for Canada generally, given that it’s a major oil exporter, and also it seems to have become the case that BOC (Bank of Canada) rate expectations are also linked directly to the oil price,” said RBC Capital Markets currency strategist Adam Cole.
“So the move in the currency is being compounded.”
Ahead of the Bank of England’s latest monetary policy meeting and interest rate decision at 1200 GMT, sterling hit a one-year low against the euro of 76.07 pence.
The consensus is that the BOE will again leave interest rates where they have been - at 0.5 percent - since early 2009, and some investors suspect the central bank may sound more dovish given the uncertain global backdrop.
But given the fact that sterling has fallen more than 5 percent since the last meeting, easing some deflationary pressures, policymakers could sound a more upbeat tone, which analysts said would provide the pound with some respite. (Additional reporting by Masayuki Kitano in Singapore and Ian Chua in Sydney; Editing by Mark Heinrich)