EUR/CAD gains near 1.6250 on cautious ECB policy outlook

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EUR/CAD gains ground after registering losses in the previous session, trading around 1.6240 during the Asian hours on Monday. The pair appreciates as the Euro (EUR) receives support from the cautious sentiment surrounding the European Central Bank’s (ECB) monetary policy outlook.

EUR/CAD appreciates amid a cautious tone surrounding the ECB policy stance.
ECB Lagarde said the central bank will adjust rates if needed to maintain its 2% target.
The CAD weakens as WTI prices fall on hopes of a potential Russia–Ukraine peace deal.

The ECB is widely expected to keep rates unchanged through the end of 2026, with inflation hovering near its 2% target, stable economic growth, and unemployment at record lows. The preliminary data showed Eurozone private-sector activity grew robustly in November, slightly below October’s more than two-year high and broadly in line with expectations, supporting the cautious view of the ECB outlook.

ECB President Christine Lagarde said on Friday that the central bank will remain vigilant to inflation risks and will adjust interest rates, if needed, to keep inflation at 2% target. ECB Governing Council (GC) member and Governor of the Central Bank of Ireland, Gabriel Makhlouf, said on Thursday that the current monetary policy is appropriate and any adjustment is unlikely, unless there is a material change.

The EUR/CAD cross also gains ground as the Canadian Dollar (CAD) loses ground due to declining Oil prices. West Texas Intermediate (WTI) Oil price extends its losses for the fourth successive session, trading around $57.90 per barrel at the time of writing. Oil prices decline as the US pushes for a Russia-Ukraine peace deal that could boost crude flows into an already well-supplied market.

Statistics Canada reported Friday that Retail Sales fell 0.7% in September, in line with market expectations and reversing August’s 1% increase. The decline was primarily driven by a 2.9% drop in motor vehicle and parts dealers, led by a 3.6% fall in new car sales.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.