The EUR/CAD currency pair held not far from last week’s low of 1.5534, its weakest level since May 13th, as investors braced for the outcome of the European Central Bank’s and the Bank of Canada’s policy meetings.
The European Central Bank is largely expected to lower its main refinancing operations rate by 25 basis points to 2.15% at its June 5th policy meeting. And, the ECB deposit facility rate is expected to be reduced to 2.00% from 2.25% currently.
In April, the central bank stressed on higher confidence that inflation was on track to return sustainably to the 2% target. Policy makers noted that wage growth was moderating, while businesses were absorbing some of the cost pressure.
Euro Area’s annual inflation has eased to 1.9% in May from 2.2% in April and compared to economist estimates of 2%.
The pullback in May’s figure was largely influenced by a drop in services inflation, which eased to 3.2%. This marked the lowest level since March 2022.
However, the ECB pointed out that the deteriorating outlook for the bloc’s economic growth remained a primary concern. The weakening growth forecast was largely attributed to escalating global trade tensions.
Market players will be closely watching ECB President Christine Lagarde’s press conference for any hints regarding future interest rate trajectory.
Lagarde has acknowledged the “exceptional uncertainty” clouding the economic outlook, citing new trade barriers facing Euro Area exporters, disruptions of international commerce, financial market tensions and geopolitical uncertainty as significant headwinds.
Meanwhile, the Bank of Canada is expected to keep its benchmark interest rate intact at 2.75% at its June 4th policy meeting.
In April, the BoC highlighted the significant challenges in projecting future GDP growth and inflation due to the unpredictable nature of US trade policy.
The central bank presented two contrasting economic scenarios in its April Monetary Policy Report:
– one involving limited tariffs and a temporary weakening of Canadian growth and,
– one more severe scenario depicting a protracted trade war leading to a Canadian recession and a temporary surge in inflation.
The EUR/CAD currency pair was last up 0.11% on the day to trade at 1.5606.
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