Euro remains weaker against Canadian Dollar as German PPI falls in June
- EUR/CAD holds losses as the Euro weakens following the release of Germany's Producer Price Index data.
- Monthly German PPI fell a steeper-than-expected 0.3%, reversing May's gain for the first drop since February.
- The Canadian Dollar gains as oil prices rise amid escalating US-Iran hostilities, sparking global supply disruption concerns.
EUR/CAD remains in negative territory after paring daily losses, trading around 1.6030 during the early European hours on Monday. The currency cross depreciates as the Euro (EUR) struggles following the release of Germany’s Producer Price Index (PPI) data.
German PPI rose 1.8% year-over-year (YoY) in June, continuing a three-month trend of producer inflation. However, growth cooled from May’s peak of 2.2%, the highest annual increase since May 2023. On a monthly basis, producer prices dropped 0.3%, reversing May’s 0.3% gain and marking the first monthly decline since February. The drop was slightly steeper than the 0.2% decline markets had expected.
The EUR/CAD cross loses ground as the commodity-linked Canadian Dollar (CAD) receives support from higher oil prices. Any change in oil prices could impact CAD as Canada is one of the largest crude exporters.
Crude oil prices have gained significantly as escalating hostilities between the United States (US) and Iran raise fears of further disruptions to vital oil flows from the Middle East. Oil prices have surged nearly 20% in July as the interim peace agreement between the US and Iran unraveled, the US resumed its blockade of Iranian ports, and Tehran intensified its attacks on shipping vessels near the Strait of Hormuz.
The US has launched its ninth consecutive night of strikes against Iranian targets. In response, Iranian officials declared that the ceasefire between the two nations has been effectively abandoned, opening the door for deepening disruptions to crucial energy pathways through the region's narrow waterways.
Euro FAQs
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%).
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.
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.
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.
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.
