The Euro strengthened against the Canadian Dollar for a second consecutive day, with the EUR/CAD pair trading around 1.6110 during European hours on Monday, following the release of German Retail Sales data. German Retail Sales fell by 0.3% month-on-month, which was a smaller decline than the expected 0.4% drop. The March figure was also revised to a 0.3% decrease from an initially reported 2.0% fall. On an annualized basis, Retail Sales decreased by 0.3%, compared to the prior release of a 0.2% decline, which was also revised from 2.0% [1].
The broader Eurozone inflation picture remains complex. Flash data for May showed that while price pressures slowed in Germany, inflation accelerated in France, Italy, and Spain. All four countries remain above the European Central Bank’s (ECB) 2% inflation target. Recent ECB Meeting Minutes revealed that some policymakers advocated for a rate hike as early as April, reinforcing market expectations for a 25-basis-point interest rate increase at the upcoming June 11 meeting [1].
On the Canadian side, the Canadian Dollar weakened amid a dovish economic outlook. Recent data indicated that Canada’s economy unexpectedly contracted in the first quarter of 2026 compared to the previous year, marking the second consecutive quarter of annual decline and highlighting a persistent loss of economic momentum. This slowdown is further emphasized by a sharp cooling in Canadian consumer prices, with the Bank of Canada’s preferred core inflation metrics dropping faster than economists anticipated to a five-year low. This trend supports the central bank’s view that recent energy-driven inflation spikes were temporary [1].
As a result of these developments, market participants have abandoned expectations for any near-term rate hikes from the Bank of Canada. There is now overwhelming confidence that the central bank will hold interest rates steady at its upcoming policy meeting on June 10 [1].
CONCLUSION
The Euro's gains against the Canadian Dollar are driven by diverging economic data and monetary policy expectations. While the Eurozone faces persistent inflation and likely ECB tightening, Canada’s weakening economy and cooling inflation have solidified expectations for steady rates from the Bank of Canada. This divergence is likely to continue influencing the EUR/CAD pair in the near term.