Key Moments
- EUR/CAD extends its advance for a third straight session, trading near 1.6200 during Tuesday’s European hours.
- Eurozone HICP inflation eases to 1.9% YoY in December 2025, reinforcing expectations that the ECB will keep rates on hold for an extended period.
- Canada’s headline inflation rises to 2.4% in December 2025, while softer oil prices weigh on the commodity-linked Canadian dollar.
Euro Gains Against Canadian Dollar Despite Risk-Off Tone
EUR/CAD continues its upward trajectory for the third consecutive session, trading around 1.6200 during European hours on Tuesday. Meanwhile, the euro strengthens against major counterparts even as broader risk sentiment remains cautious. This advance is largely tied to a weaker US dollar amid the US–Greenland issue, which helps underpin the common currency.
However, the euro’s upside may be constrained. Indeed, softer inflation dynamics in the Eurozone are reinforcing expectations that the European Central Bank (ECB) will maintain its current policy stance for an extended period, limiting the scope for additional gains.
Eurozone Inflation Cooldown Supports Prolonged ECB Policy Pause
The latest Eurozone Harmonized Index of Consumer Prices (HICP) data show inflation slowing, and this adds to the view that the ECB is likely to remain on hold if its current projections stay intact. Policymakers have signaled a steady approach, with no immediate plans to adjust interest rates as long as the outlook remains unchanged.
Eurozone HICP inflation decelerated to 1.9% year-over-year in December 2025, down from 2.1% in November. This reading came in slightly below the preliminary estimate of 2.0% and marked the first sub-2% outcome since May. At the same time, core inflation eased to 2.3%, its lowest level in four months.
| Indicator | Period | Latest Reading | Previous | Additional Detail |
|---|---|---|---|---|
| Eurozone HICP (YoY) | December 2025 | 1.9% | 2.1% | Below 2.0% flash estimate; first sub-2% since May |
| Eurozone Core Inflation (YoY) | December 2025 | 2.3% | Not specified | Lowest in four months |
| Canada CPI (YoY) | December 2025 | 2.4% | 2.2% | Highest in three months; above expectations for unchanged |
Canadian Dollar Pressured by Softer Oil and CPI Surprise
The Canadian dollar faces headwinds that may allow EUR/CAD to push higher. As a commodity-linked currency, CAD is sensitive to oil price swings, and the latest pullback in crude is weighing on its performance. In addition, Canada’s role as the largest crude exporter to the United States ties its currency closely to energy market developments.
Meanwhile, WTI crude retreats after two consecutive sessions of gains, trading near $58.80 per barrel at the time of writing. The move lower comes as rising tensions between the US and the European Union cloud the outlook for global demand, keeping oil under pressure.
On the inflation front, Canada’s headline consumer price index climbed to 2.4% in December 2025 from 2.2% in the prior month. This marked the highest level in three months and surpassed market expectations that inflation would remain unchanged. As a result, the data produced a slight divergence from the Bank of Canada’s assumption that CPI would hover around 2% in the near term, leaving the policy outlook less clear-cut.
Tariffs: Definitions and Policy Context
Tariffs continue to be a focal point in trade and economic discussions, affecting cross-border flows, price dynamics, and policy debates. The article provides a concise overview of what tariffs are, how they differ from taxes, and the contrasting views on their economic impact.
Tariffs FAQs
What are tariffs?
Tariffs are customs duties levied on certain merchandise imports or a category of products. They are designed to help local producers and manufacturers stay competitive by giving them a price advantage over similar imported goods. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
What is the difference between taxes and tariffs?
Although both tariffs and taxes generate government revenue, they differ in several ways. Tariffs are paid at the port of entry, while taxes are paid at the time of purchase. Moreover, tariffs are imposed on importers, while taxes are paid by individual taxpayers and businesses.
Are tariffs good or bad?
There are two schools of thought among economists regarding tariffs. Some argue they are necessary to protect domestic industries and address trade imbalances. Others believe tariffs can drive prices higher over the long term and trigger damaging trade wars through tit-for-tat retaliation.
What is US President Donald Trump’s tariff plan?
During the run-up to the 2024 presidential election, Donald Trump stated he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China, and Canada accounted for 42% of total US imports. Mexico was the top exporter with $466.6 billion, according to the US Census Bureau. Therefore, Trump plans to focus on these three nations when imposing tariffs. He also aims to use the revenue generated through tariffs to lower personal income taxes.
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