Euro steadies against Canadian Dollar amid ECB hawkish sentiment, lower oil prices

EUR/CAD may advance as the Euro could gain support from an ongoing hawkish ECB tone.
The Canadian Dollar faces pressure from declining oil prices despite escalating Middle East supply risks.
Yemeni Houthi forces captured the strategic port of Mokha, threatening vital global trade routes.

Akhtar Faruqui FXStreet

EUR/CAD experienced volatility but remained flat for the second successive day, hovering around 1.6060 during European hours on Friday. The currency cross may rise as the Euro (EUR) could receive support due to ongoing hawkish sentiment surrounding the European Central Bank (ECB) policy outlook.

The ECB raised the interest rate on the deposit facility to 2.50% at its September policy meeting on Thursday, as widely expected. It was the ECB’s second hike this year, after policymakers raised borrowing costs in June for the first time since 2023. ECB President Christine Lagarde warned that the conflict in the Middle East and recent developments in Russia’s war on Ukraine will keep headline inflation “well above” the bank's 2% target for an extended period.

Meanwhile, the commodity-linked Canadian Dollar (CAD) struggles due to a decline in oil prices. However, crude oil prices may rebound as the escalating conflict between the US and Iran has fueled concerns over prolonged disruptions to global energy supplies. Top US officials reportedly warned President Donald Trump that the war could continue through the remainder of his term, which ends in January 2029.

Adding to regional tensions, the BBC cited military sources and witnesses, saying that Yemen's Houthis have seized the strategic Red Sea port city of Mokha from Saudi-backed pro-government forces. Mokha's capture leaves the Iran-backed group only 75km (46 miles) away from the Bab al-Mandab Strait, the southern gateway to a vital trade route linking Asia and Europe.

Euro FAQs

What is the Euro?

The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What is the ECB and how does it impact the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

How does inflation data impact the value of the Euro?

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

How does economic data influence the value of the Euro?

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

How does the Trade Balance impact the Euro?

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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