* ECB’s policy decision due later on Thursday
* Canadian dlr stands tall after rallying on BoC rate hike
* Dollar eases vs yen, but above Wednesday’s 1-week low
By Masayuki Kitano
SINGAPORE, Sept 7 (Reuters) - The euro held firm on Thursday ahead of a European Central Bank policy meeting, while the Canadian dollar hovered at two-year highs after the Bank of Canada surprised many by raising interest rates.
The euro edged up 0.1 percent to $1.1928, although it was still trading below last week’s high of $1.2070, its highest level since January 2015.
The common currency has lost some momentum since hitting that 2-1/2 year peak, weighed down by rising expectations that a stronger euro could slow the European Central Bank’s plans to rein in its bond-buying stimulus.
Only 15 of 66 economists polled by Reuters said they expect the ECB to announce a reduction of its monthly asset purchases at Thursday’s ECB policy meeting — a sharp reversal from a month ago when slightly over half of respondents expected such a move.
The focus is on whether ECB President Mario Draghi expresses any concerns about the euro’s recent strength.
“The market expects him (Draghi) to say something about it,” said Tareck Horchani, head of sales trading in Asia Pacific for Saxo Markets in Singapore, referring to the euro’s rise.
The euro could rally if the ECB and Draghi don’t mention anything about the euro’s strength, Horchani said.
If they do, and the euro sells off, the common currency may find support in the $1.17 to $1.18 area in the near term, Horchani added.
The Canadian dollar last traded at C$1.2238 per U.S. dollar. On Wednesday, it had scaled a high of C$1.2140, its highest level since June 2015.
That rally came after the Bank of Canada raised interest rates by 25 basis points to 1 percent on Wednesday, surprising many, and left the door open to more rate hikes in 2017.
The U.S. dollar eased 0.2 percent to 109.07 yen, staying above a one-week low of 108.45 yen set on Wednesday.
Although the dollar gained a lift on Wednesday, helped by relief over U.S. President Donald Trump’s surprise deal with the Democrats on extending the debt limit, lingering concerns over North Korea related tensions may limit the dollar’s upside versus the Japanese currency, said Saxo Market’s Horchani.
Japan is the world’s largest net creditor nation, and at times of uncertainty traders assume Japanese repatriation from foreign countries will eclipse foreign investors’ selling of Japanese assets.
As a result, the yen has continued to behave as a safe-haven currency despite Japan’s proximity to North Korea.
Trump agreed with Democrats in Congress on Wednesday to extend the U.S. debt limit and provide government funding until Dec. 15, potentially avoiding an unprecedented default on U.S. government debt.
If passed by the Republican-led Congress, the agreement would keep the government funded at the outset of the fiscal year beginning Oct. 1 and provide aid to victims of Hurricane Harvey. (Reporting by Masayuki Kitano; Editing by Kim Coghill)