Euro hits one-month low as Fed rate hike looms Wednesday

The euro extended its losing streak to a fourth straight session on Tuesday, weighed down by a widening policy gap between the European Central Bank and the Federal Reserve that markets see no near-term path to closing. The ECB's daily reference rate for September 15 came in at 1.1539, confirming the currency's position near the bottom of its September range, while EUR/USD traded around 1.1538 in New York hours.ecb.europa+1

A Rate Hike That Bought the Euro Nothing

The ECB raised its deposit rate by 25 basis points to 2.50% on September 10, effective Wednesday, September 16. Under normal circumstances, a rate hike supports the currency that delivers it. Instead, the euro has fallen in every session since, shedding ground against the dollar as traders looked past the ECB decision toward the Federal Reserve's two-day meeting that begins Tuesday.investing

An 85% majority of economists polled by Reuters — 86 of 101 — said the Fed would raise rates by a quarter point to a target range of 3.75% to 4.00% at the September 15–16 meeting, the first increase since July 2023. Prediction markets reflected similar odds, with Kalshi pricing a 25-basis-point hike at 86%. The result is a policy gap that narrows from 150 to 125 basis points on Wednesday morning when the ECB hike takes effect, only to snap back to 150 basis points hours later when the Fed announces its decision.reuters+2

Eurozone Sentiment Collapses

A weak Eurozone ZEW economic sentiment reading added to the pressure. The index fell to 25.8 in September from 31.4 in August, missing expectations and marking one of the largest negative surprises in the survey this year. The deterioration undercuts the ECB's growth narrative and raises questions about whether the central bank can deliver another hike later this year.tradingeconomics+2

With U.S. inflation running at 3.4% and eurozone inflation at 3.3%, the two economies face similar price pressures. Yet after Wednesday's expected move, the Fed's real policy rate would turn positive at roughly 0.60 percentage points while the ECB's would remain negative at minus 0.80 — a gap that pulls capital toward dollar-denominated assets.investing

What Comes Next

The pair now sits just above the 50% Fibonacci retracement of its latest swing at 1.1533. A break below that level would open the path toward 1.1491 and potentially the 2026 low near 1.1355. Traders are watching Wednesday's Fed statement and press conference for any signal on whether further hikes are coming. Reuters's poll found a majority of economists expect at least one more increase by the end of March 2027. For the euro, relief may depend less on what the ECB does next and more on whether the Fed pauses after this week.reuters+1