- EUR/USD trades near 1.1470 after the Federal Reserve's first interest rate hike in more than three years strengthened the US Dollar.
- The Fed raised rates by 25 basis points to 3.75%-4.00% and signalled that further tightening may be needed as inflation remains elevated.
- The EUR/USD forecast remains under pressure below 1.1500, although easing oil prices and an increasingly aggressive US rate outlook could limit further Dollar gains.
EUR/USD is trading near 1.1470 on Thursday after the Federal Reserve delivered its first interest rate hike since 2023 and signalled that US borrowing costs could rise further in the coming months.
The euro has fallen sharply from levels above 1.16 earlier this month as the Dollar benefits from a rapid repricing of US interest rate expectations. The Fed’s decision pushed the Dollar to a seven-week high before some of those gains eased during Thursday’s session.
For EUR/USD, the September Fed meeting has reinforced a widening monetary-policy divide. Markets are now considering additional US rate hikes at the same time as the European economic outlook remains vulnerable to high energy prices and weaker growth.
Hawkish Fed Rate Hike Strengthens the US Dollar
The Federal Reserve unanimously raised the federal funds rate by 25 basis points to 3.75%-4.00%, ending a period of more than three years without an increase. The rate hike itself was largely expected. The bigger catalyst for the EUR/USD exchange rate came from the Fed’s updated projections and the message that followed.
Most policymakers see a case for at least one additional increase before the end of 2026. Markets have gone further, pricing a more aggressive tightening cycle than the Fed’s own projections currently imply.
Goldman Sachs has already changed its call following the meeting and now expects another Fed rate hike in October. Markets currently assign roughly a 50% probability to another quarter-point increase at that meeting. The shift has supported US Treasury yields and strengthened the Dollar against major currencies, leaving EUR/USD close to its weakest level in seven weeks.
Fed Outlook Keeps Pressure on EUR/USD
The Fed’s economic projections gave investors little reason to expect a quick reversal in monetary policy. Policymakers upgraded their view of US economic growth while projecting lower unemployment and persistent inflation. That combination strengthens the argument that the US economy may be able to withstand higher borrowing costs for longer.
Fed Chair Kevin Warsh also resisted giving explicit forward guidance, leaving incoming inflation and labour-market data to determine how quickly policymakers move from here. That uncertainty matters for the EUR/USD forecast.
If US inflation remains sticky and economic growth holds up, expectations for additional rate hikes could continue supporting the Dollar. Conversely, weaker data would challenge the increasingly aggressive path already priced into US rates.
That distinction is important because the market is currently more hawkish than the Fed itself. If incoming data fail to justify those expectations, some of the recent Dollar strength could unwind.
EUR/USD Forecast: Can the Euro Recover Above 1.1500?
The EUR/USD forecast remains tilted to the downside following the Fed decision, with the pair trading near 1.1471 after breaking sharply lower this week. The immediate question is whether EUR/USD can recover above 1.1500. A sustained return above that level would ease some of the recent selling pressure and put the 1.1550 area back in focus.
Failure to reclaim 1.1500 would leave the euro vulnerable to another move lower, with 1.1450 providing the first area to watch. Below that, the 1.1400 region becomes increasingly important. Momentum has weakened significantly during September, reflecting the Dollar’s renewed strength following the shift in Fed expectations.
For now, EUR/USD remains driven primarily by the gap between US and European rate expectations. The Fed has strengthened the Dollar side of that equation, but with markets already pricing an aggressive US tightening path, upcoming inflation and labour-market data will determine whether the greenback can extend its advance.
The US Dollar strengthened because the Federal Reserve delivered more than the widely expected 25-basis-point hike. Policymakers also signalled that interest rates could remain higher for longer, with 16 of 18 officials projecting at least one additional increase in 2026. That pushed US rate expectations and Treasury yields higher, increasing support for the Dollar.
The Fed rate hike is bearish for EUR/USD when it widens the expected interest-rate advantage of the US over the eurozone. Further increases in US Treasury yields could keep EUR/USD under pressure below 1.1500. However, because markets have already priced substantial additional Fed tightening, weaker US economic or inflation data could reduce those expectations and allow the euro to recover.
Another Fed rate hike remains possible before the end of 2026. Twelve FOMC participants projected one additional 25-basis-point increase this year, while four projected another 50 basis points of tightening. Markets will now focus on upcoming US inflation and labour-market data to determine whether the next move comes in October or December.