Euro drops against Canadian Dollar amid energy shocks, growing Fed rate hike pressures

The Euro (EUR) continues to decline against the Canadian Dollar (CAD) as mounting concerns over energy shocks and rising Federal Reserve rate hike expectations weigh on the pair. The EUR/CAD exchange rate slipped to around 1.6030 during European trading hours on Monday, trading lower after recent gains.

The Euro faces increasing pressure from rising risk aversion, soaring oil prices, and heightened expectations of Federal Reserve rate hikes. Traders are adopting a cautious approach due to worries about a prolonged Middle East crisis, which has kept oil prices elevated and caused inflationary pressures globally. Recent US Consumer Price Index (CPI) data showed a month-on-month increase of 0.4% in August, with a 12-month rise of 3.4%, further fueling pressure on the Federal Reserve to tighten monetary policy.

The Federal Reserve's potential rate hike at the upcoming meeting has seen financial markets price in an 87% probability, up from 59% the previous week. European Central Bank (ECB) Governor Gediminas Simkus indicated that monetary policy actions at every meeting cannot be ruled out, emphasizing the need to closely monitor energy prices ahead of the October meeting.

Meanwhile, the Canadian Dollar (CAD) is receiving strong support from elevated oil prices, as crude oil prices have surged close to four-month highs following a drone attack that forced Saudi Arabia to shut down a major pipeline. Market participants will closely watch Canada's August CPI figures, released on Monday, which could shed light on the Bank of Canada's recent shift in tone and the potential for a more hawkish stance.

The data will help determine whether upside inflation risks are materializing and how firmly the Bank of Canada's cautious approach will be reinforced.