Euro remains steady vs Canadian Dollar ahead of key ECB decision

On Thursday, the Euro (EUR) remained steady against the Canadian Dollar (CAD) at around 1.6060, with minimal movement throughout the day. Investors are cautious as the European Central Bank (ECB) prepares to announce its monetary policy decision at 12:15 GMT. The ECB is widely anticipated to increase the Deposit Facility Rate by 25 basis points to 2.5%, although this move is already priced into the market.

Consequently, traders will focus on the central bank's policy statement and any insights into future interest rate movements. ECB President Christine Lagarde's press conference will be closely monitored for clues on whether the bank expects additional rate hikes to curb inflation or if it plans to ease its tightening cycle. Recent Eurozone inflation data shows annual inflation rising to 3.3% in August from 2.9% in the previous month, suggesting that the ECB may need to keep a restrictive monetary policy.

The reaction of the EUR should largely depend on Lagarde's message regarding the next steps for monetary policy. If she hints at further rate increases, the single currency could gain strength and push EUR/CAD higher. However, if signals suggest the tightening cycle is coming to an end, the pair may weaken. Scotiabank analysts note that the CAD has shown limited sensitivity to recent tensions between the US and Canada, despite some trade restrictions taking effect on September 29th.

They believe that the underlying drivers of the CAD are improving. The table below displays the percentage change of the EUR against major currencies today, with the Euro being the strongest against the Australian Dollar.