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.
The Euro (EUR) has maintained its strength for an eighth consecutive day, trading around 1.6170 against the Canadian Dollar (CAD) in European trading hours on Tuesday. The EUR's resilience is bolstered by a surge in market risk sentiment, following the United States' decision to cancel planned military strikes on Iran. This move reflects a diplomatic resolution possibility amidst geopolitical tensions.
However, Iran's response to the proposal remains skeptical. General Mohsen Rezaei, an advisor to Iran's Supreme Leader, outright rejected the conditions and asserted Iran would not permit a second corridor in the Strait of Hormuz. Despite the rejection, the Euro's momentum gained further traction as stronger-than-expected economic data from the Eurozone reinforced expectations of a potential interest rate hike by the European Central Bank (ECB) during its upcoming meeting.
Eurozone growth accelerated to a 0.4% expansion in the second quarter, surpassing initial forecasts and marking its strongest growth since early 2025. This economic momentum was further accentuated by July's figures, with annual inflation surging to 2.9% and core inflation seeing improvements. Strategists at BNY suggest that the absence of further tightening by the Federal Reserve has instilled hopes for more accommodative financial conditions globally, mitigating the impact of ECB policy through external channels.
They caution that falling prices for dollar-priced commodities might lead to marginal negative impacts on the EUR/CAD exchange rate. However, the Canadian Dollar (CAD) could withstand gains due to the strength of commodity-linked CAD. With ongoing geopolitical friction in the Middle East, crude oil prices have risen, particularly West Texas Intermediate (WTI) crude, which increased over 2% to trade around $80.50 per barrel.
This surge in oil prices provides support to the CAD. Deutsche Bank analysts note that following several weeks of military exchanges and fears of a renewed energy shock, markets welcomed President Trump's late weekend comments about fresh talks with Iran, which began after he cancelled plans for a major attack. The potential gains for the EUR/CAD cross might be limited by the strength of commodity-linked CAD.
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