* FX market subdued before Thursday's ECB meeting
* Bank of Canada meeting eyed
* Sterling falls after weak industrial data
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By Jemima Kelly
LONDON, Dec 7 Most major currencies treaded
water on Wednesday with traders looking ahead to a meeting of
the European Central Bank on Thursday that could set the tone
for markets after the sharp moves in the wake of last month's
The ECB is widely expected to announce an extension to its
quantitative easing programme, but uncertainty reigns over
whether the size of the monthly asset purchases will be kept
steady or scaled back, and over whether a formal signal on the
eventual end of the asset-purchase programme will be sent.
If the ECB does say it will start to reduce its asset
purchases - so-called tapering - the euro would probably rebound
following a 4 percent fall against the dollar over the
past month, analysts said.
On Wednesday the European single currency edged up 0.2
percent to $1.0734. It had slumped on Monday to $1.0505, its
lowest since March 2015, in a knee-jerk reaction after Italian
Prime Minister Matteo Renzi lost a referendum on constitutional
reform and said he would resign.
But the euro quickly jumped back to a 3-week high of $1.0797
on the same day as a worst-case political scenario for Rome
appeared to have been averted for the time being, and as
investors turned their attention to the ECB.
"People had gone into the referendum with a very pessimistic
view and I think the last five years have taught us that, as far
as the euro is concerned, political issues often don't have a
lasting impact," DZ Bank currency analyst Sonja Marten said in
The dollar was flat at 114.03 yen, not far off the
peak of 114.83 hit last week, its highest against the Japanese
currency since early February. The greenback has surged over 10
percent against the yen in the past month.
Bank of Japan Deputy Governor Kikuo Iwata said on Wednesday
that the central bank had not shifted its focus away from the
pace of money printing and stressed it remained committed to
using both rate cuts and asset purchases as key tools to revive
"The Fed is hiking rates, the ECB might extend the duration
of its programme..., but the next big thing is going to be
tapering," said Marten. "There's a general move away from adding
onto expansionary measures. So the central banks that continue
to signal that they are willing to do that stand out."
Against a basket of currencies, the dollar edged down 0.1
percent to 100.44, having poked above 102.00 to a
13-1/2-year high in late November as U.S. Treasury yields soared
on prospects of President-elect Donald Trump adopting large
fiscal spending and reflationary policies.
"While we still think that the dollar could bounce further,
especially in 2017, euro/dollar's short-term direction will
ultimately depend on what the Fed has to say about the future
direction of U.S. interest rates at its meeting next week," said
Kathleen Brooks, research director at City Index.
"If the Fed believes that President-elect Trump's fiscal
largesse warrants a faster pace of rate increases than is
currently being priced in, then the market will rush to price in
higher yields, which will boost the dollar and weigh on
currencies like the euro."
The biggest mover among major currencies was sterling, which
fell as much as 0.8 percent to hit a one-week low of 85.255
pence against the euro. It also slid half a percent
against the dollar after data showed British industrial
output suffered its biggest monthly fall in more than four
The Canadian dollar was flat ahead of a Bank of Canada
policy meeting that is expected to see interest rates left
For Reuters new Live Markets blog on European and UK stock
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(Additional reporting by Shinichi Saoshiro in Tokyo; Editing by