Euro Dives Against Loonie Amid OPEC Oil Shocks and Rate Hike Fears

The Euro has depreciated against the Canadian Dollar, trading around 1.6030 during European hours on Monday. This decline is attributed to increasing risk aversion, rising oil prices, and growing Federal Reserve rate hike bets.

Traders are adopting a cautious stance due to concerns over the protracted Middle East crisis, which has led to elevated oil prices and an inflationary shock to the global economy. The recent US Consumer Price Index (CPI) data, released by the Bureau of Labor Statistics, showed a 0.4% month-on-month increase in August, pushing the 12-month rise to 3.4%. Core CPI also increased by 0.3% monthly, surpassing both prior and forecasted gains.

The US inflation report has intensified pressure on the Federal Reserve to tighten monetary policy further, with a CME FedWatch tool indicating an 87% probability of a quarter-point rate hike at the next meeting, up sharply from 59% the previous week. ECB Governing Council member Gediminas Simkus stated that the possibility of monetary policy actions at every upcoming meeting cannot be ruled out, emphasizing the need to closely evaluate energy prices ahead of the October policy meeting.