Euro holds gains against Canadian Dollar following German GfK Consumer Confidence
- EUR/CAD holds gains despite Germany's GfK Consumer Confidence tumbling to -30.6 for October, its weakest since May.
- The Canadian Dollar faces downward pressure as crude oil prices decline.
- Oil prices fell amid reported US-Iran UN talks to reopen the Strait of Hormuz.
EUR/CAD gains ground for the second successive day, trading around 1.6110 during early European hours on Friday. The currency cross remains stronger as the Euro (EUR) holds gains despite weaker-than-expected Germany's GfK Consumer Confidence Survey, which fell to -30.6 heading into October from a revised -26.8 in September, deteriorating more sharply than the expected decline to -27.4. This marked the weakest reading since May.
Eurozone resilience overshadowed by widening French spreads
Analysts at ING note that Euro-specific fundamentals remain mixed, with recent data underscoring a degree of resilience but failing to translate into clear support for the single currency. They point out that “economic resilience (yesterday’s Ifo index mirrored strong PMIs) is at least partly being offset as a EUR-positive factor by wider eurozone spreads.” In particular, ING highlights that “French 10-year yields are trading 110bp above bunds,” and adds that there has been “little relief from reports that Marine Le Pen may back the proposed budget to avert a bond crisis,” leaving political and fiscal concerns as a persistent drag on Euro sentiment.
The EUR/CAD cross appreciates as the commodity-linked Canadian Dollar (CAD) faces downward pressure from falling crude oil prices. Crude oil prices drop after reports that the United States (US) and Iran are considering a phased agreement to reopen the Strait of Hormuz and lift the US blockade on Iranian ports. Mediated by Qatari officials, these breakthrough discussions were reportedly initiated on the sidelines of the United Nations General Assembly.
Brent-WTI spread widens as Middle East risk supports international benchmark
Analysts at UOB Group highlight the pronounced underperformance of US crude, noting that "WTI crude settled at $94.61/bbl, down 5.67% on the week, reflecting the sharp midweek selloff that preceded Thursday’s partial recovery in Brent." They add that "the divergence between the two benchmarks widened significantly, with Brent’s premium over WTI increasing as the risk of supply disruptions through the Strait of Hormuz continued to support the international benchmark."
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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