Euro falls against Canadian Dollar as ECB policy decision approaches

• Persistent energy-led inflation risks remain in focus as the Euro slips before the ECB’s interest rate announcement.
• A deposit rate of 2.50% is expected from the ECB, while traders look for signals of potential rate rises in December.
• A 25 bps increase to 2.50% from the Bank of Canada supported CAD and pointed to the possibility of further tightening.

Trading near 1.5580 in Thursday’s European session, EUR/CAD extends the run of losses that started on 16 October. Weakness in the Euro (EUR) ahead of the European Central Bank’s (ECB) forthcoming monetary policy announcement weighed on the cross.

A deposit rate of 2.50% is widely anticipated at Thursday’s ECB meeting, with policymakers expected to leave it unchanged after raising rates by 50 basis points earlier this year. The persistence of energy-led inflation, however, has kept discussion alive about a possible resumption of rate increases in December. Investors are therefore paying close attention to the ECB’s assessment of inflation risks and economic growth, alongside any guidance on the likely course of interest rates.

The Canadian Dollar (CAD) also gained following Wednesday’s October meeting of the Bank of Canada (BoC), where a 25 basis point increase took the benchmark overnight interest rate to 2.50%. This added to the pressure on EUR/CAD. Further rate rises may be necessary, according to BoC Governor Tiff Macklem, although economic uncertainty means policymakers plan to proceed cautiously. In support of its hawkish position, the BoC’s official statement cited continued resilience in the global economy as the reason for a modest upward revision to its 2026 global GDP growth forecast to 3.1%. Its forecasts for 2027 and 2028 remained at 3.2%.

The latest Bank of Canada rate rise drew only a muted market response, according to analysts at Danske Bank. They observed that “USD/CAD and the 2Y swap rate were about unchanged on the news,” highlighting the absence of a material move in key Canadian foreign exchange and interest rate benchmarks following the policy change.