The Euro (EUR) weakened against the Canadian Dollar (CAD), with the EUR/CAD pair trading around 1.6080 during early European hours on Tuesday, following three consecutive days of gains. This depreciation is attributed to the Canadian Dollar's strength, which is supported by higher oil prices and increased market caution. Investors are closely monitoring potential US-Iran diplomatic developments at the United Nations General Assembly in New York, particularly after energy supplies safely passed through the Strait of Hormuz over the weekend. US President Donald Trump is scheduled to address the UN General Assembly, with a possible side meeting with Iranian President Masoud Pezeshkian and planned talks with Chinese President Xi Jinping and Gulf leaders. The Trump administration has also proposed a $5 billion fund to support reconstruction in the Middle East [1].
The Euro is under additional pressure due to escalating political instability in Germany. After Sunday's state elections in northeastern Germany, the far-right Alternative for Germany (AfD) secured first place, while Chancellor Friedrich Merz's conservative party experienced its worst regional defeat in post-war history, casting doubt on Merz's leadership. This political uncertainty is contributing to the Euro's weakness against major currencies [1].
Analysts at ING highlight that the French 10-year spread over German bunds has reached the 100 basis point mark, a development the FX market is currently approaching with caution. ING warns that risks of further spread widening remain and suggests that the Euro may start to react more strongly if French yields continue to rise [1].
CONCLUSION
The Euro's decline against the Canadian Dollar is driven by a combination of German political instability and higher oil prices supporting the CAD. Market participants are also watching geopolitical developments at the UN General Assembly and the potential for further spread widening in European bond markets. The outlook for the Euro remains cautious amid these uncertainties.