Euro strengthens against Canadian Dollar following German Retail Sales

EUR/CAD extends its gains for the second successive day, trading around 1.6110 during the European hours on Monday. The currency cross remains stronger following the release of German Retail Sales data, which fell 0.3% month-on-month (MoM), while it was expected to have declined 0.4%. In March, Retail Sales dropped by 0.3% (revised from 2.0%). On an annualized basis, Retail Sales decreased 0.3%, compared to the prior release of a 0.2% decline (revised from 2.0%).

The broader Eurozone faces a complex inflationary environment. Flash data for May revealed that while price pressures slowed in Germany, inflation accelerated in France, Italy, and Spain, leaving all four nations well above the European Central Bank’s (ECB) 2% target. This sticky inflation, combined with recent ECB Meeting Minutes showing that some policymakers had already pushed for a rate hike in April, strongly reinforces market expectations for a 25-basis-point interest rate increase at the upcoming June 11 meeting.

The EUR/CAD cross appreciates as the Canadian Dollar (CAD) weakens under an increasingly dovish economic outlook. Canada’s recent data indicated that the domestic economy unexpectedly contracted in the first quarter of 2026 compared to the previous year. Because this marks the second consecutive quarter of annual decline, the figures highlight a distinct and ongoing loss of domestic economic momentum.

This slowdown is further underscored by a sharp cooling in Canadian consumer prices. The Bank of Canada’s (BoC) preferred core inflation metrics have dropped faster than economists anticipated, hitting a five-year low and signaling that underlying price pressures outside the volatile energy sector are successfully easing. This cooling trend firmly validates the central bank’s perspective that recent energy-driven inflation spikes were merely temporary.

Meanwhile, the data has completely wiped out expectations for any near-term rate hikes. Market participants are now overwhelmingly confident that the Bank of Canada will hold interest rates steady at its upcoming policy meeting on June 10.