Recent Fed monetary tightening has widened the policy rate gap with the ECB, supporting the US dollar and pressuring EUR/USD toward 1.135 as of late September 2026. The Federal Reserve raised its target range to 3.75–4.00% in mid-September, with markets pricing roughly 70% odds of an additional October hike amid resilient US growth, firm inflation expectations, and two-year Treasury yields near 4.95%. In contrast, the ECB lifted its deposit rate to 2.50%, yet euro-area GDP growth is projected at just 0.9% for the year with inflation forecasts remaining above target. This divergence in rate paths and economic momentum has driven the pair lower from August highs near 1.17, with traders monitoring upcoming US labor and inflation data alongside any further central-bank signals for shifts in implied probabilities.