Euro holds ground as Eurozone growth data offsets oil-driven CAD gains

EUR/CAD remains stronger for the eighth consecutive day, trading around 1.6170 during the European hours on Tuesday. The currency cross is holding its ground as the Euro (EUR) gains support from an uptick in market risk sentiment.

Geopolitical tensions eased slightly after US President Donald Trump called off planned military strikes on Iran, signaling that a diplomatic resolution to the conflict remains a possibility. Although President Trump framed his offer for talks as a "last chance," Iranian leadership quickly dismissed the proposal. General Mohsen Rezaei, an advisor to Iran's Supreme Leader, rejected the conditions outright and asserted that Iran would not permit a second corridor in the Strait of Hormuz.

Adding to the Euro's momentum, stronger-than-expected economic data from the eurozone has reinforced expectations that the European Central Bank (ECB) could raise interest rates at its upcoming meeting. The eurozone economy expanded by 0.4% in the second quarter, doubling forecast estimates to mark its strongest growth since early 2025. This economic momentum was further underscored by July's figures, which saw annual inflation accelerate to 2.9% alongside pick-ups in both core and services inflation.

Fed pause tempers global tightening but rates still price further ECB moves

Strategists at BNY observe that the absence of “additional tightening by the Fed has led to hopes of easier financial conditions globally,” partially cushioning the impact of ECB policy via the external channel. They add that “falling prices for dollar-priced commodities will generate some negative pass-through on the margins,” yet caution that, in the absence of “clear visibility over the conflict, rates markets are unlikely to remove the near 45bps currently priced in additional tightening by year-end.”

However, potential gains for the EUR/CAD cross may be capped by strength in the commodity-linked Canadian Dollar (CAD). With diplomatic friction in the Middle East remaining high, crude oil prices have pushed upward; West Texas Intermediate (WTI) crude gained over 2% to trade around $80.50 per barrel at the time of writing, providing underlying support for the CAD.

Oil steadies as markets embrace US-Iran dialogue hopes

Analysts at Deutsche Bank note that, “after several weeks of military exchanges and fears of a renewed energy shock, markets have started August welcoming the late weekend comments from President Trump that fresh talks with Iran would begin after he cancelled plans for what he described as a major attack.” Set against the sharp pullback in Oil and the tentative rebound that followed, the bank highlights how the prospect of renewed US-Iran dialogue has helped ease immediate concerns around energy disruption and risk premia.