Euro steadies against Canadian Dollar after paring recent losses

• EUR/CAD recovers its daily losses on ECB rate hike bets.
• ECB policymaker Isabel Schnabel stated that monetary tightening is not over.
• The Canadian Dollar may struggle as the BoC is expected to hold interest rates steady all year.

EUR/CAD remains flat after paring intraday losses, trading around 1.6150 during the European hours on Friday. The currency cross receives support as the Euro (EUR) gains ground following European Central Bank (ECB) policymaker Isabel Schnabel's comments, reiterating on Thursday that the central bank’s monetary tightening cycle is not yet over.

While acknowledging that short-term economic conditions have outpaced expectations, Schnabel warned that a recent ceasefire should not prompt policymakers to lower their guard. She emphasized that, from today's perspective, further interest rate hikes will be necessary to steer inflation back down to the ECB's 2% medium-term target.

However, ECB President Christine Lagarde noted earlier this week that the central bank can avoid aggressive policy reactions to geopolitical spillovers from the Middle East. While Lagarde acknowledged that the Eurozone's inflation shock is too significant to ignore, she emphasized it remains insufficient to drive up long-term inflation.

The EUR/CAD cross may further advance as the commodity-linked Canadian Dollar’s (CAD) upside could be capped as the Bank of Canada (BoC) is expected to hold interest rates steady for the remainder of the year.

According to the minutes from the BoC’s policy meeting, the governing council agreed to keep its monetary policy nimble to respond to the simultaneous risks of new US trade restrictions and volatile energy prices. Reflecting this cautious outlook, Reuters data shows traders have sharply scaled back expectations for further tightening, now pricing in just 17 basis points by December, down from 60 basis points last month.