EUR/USD Falls Toward Seven-Week Low as Hawkish Fed Lifts Dollar: Is 1.1350 Next?

Key Takeaways

• EUR/USD fell to around 1.1463, near a seven-week low, after the Federal Reserve raised interest rates by 25 basis points and signalled that further tightening may be needed.
• The Fed lifted its target range to 3.75%–4.00%, while higher short-term Treasury yields and a stronger US dollar increased pressure on the euro.
• The technical picture remains fragile below 1.1523–1.1535. A sustained decline through 1.1420 could expose the 1.1350 area, although weaker US data or softer Fed expectations could support a recovery.

EUR/USD Slides as the Dollar Strengthens

source: tradingeconomics

EUR/USD fell toward 1.1450 on Thursday, September 17, extending its decline after the Federal Reserve delivered its first interest-rate increase in more than three years. The currency pair traded near 1.1463 during the Asian session, close to its weakest level in seven weeks, as investors reassessed the likely path of US monetary policy.

The move reflected broad dollar strength rather than a euro-specific shock. The US Dollar Index climbed near 100.3, its strongest area since late July, after the Fed raised its benchmark rate and maintained a firm stance on inflation. A stronger dollar mechanically weighs on EUR/USD because the pair measures how many US dollars are required to buy one euro.

The decline also pushed the pair below technical levels that had previously limited downside movement. EUR/USD had already lost momentum before the policy announcement, but the combination of a rate increase, resilient US economic language and the prospect of another hike accelerated the fall.

Fed Raises Rates to 3.75%–4.00%

The Federal Open Market Committee voted unanimously to raise the federal funds target range by 25 basis points to 3.75%–4.00%. Policymakers described US economic activity as expanding at a solid pace, supported by resilient domestic spending, strong productivity and robust capital investment.

The Fed also said inflation remained elevated and presented the rate increase as necessary to support a more timely return to its 2% goal. That language reduced the likelihood that the September decision would be treated as an isolated adjustment.

Updated policy projections reinforced the higher-for-longer message. Most officials indicated that at least one additional increase could be appropriate before the end of 2026, while the projected policy path remained restrictive further into the forecast period. Rate futures subsequently reflected a high probability of another quarter-point increase before year-end.

For currency markets, the relative direction of policy is often more important than the absolute level of interest rates. Expectations for tighter US policy tend to lift short-term yields and improve the relative return available on dollar-denominated assets. That can strengthen demand for the dollar and create downward pressure on EUR/USD.

Treasury Yields Add to Pressure on the Euro

US Treasury yields rose sharply around the Fed announcement, particularly at the short end of the curve. The two-year yield, which is highly sensitive to expectations for monetary policy, traded around 4.72%, near its highest level since 2024. The 10-year yield remained close to 5%.

The sharper rise in short-term yields flattened the Treasury curve and showed that traders were assigning a more restrictive path to Fed policy. This reaction matters for EUR/USD because changes in the expected return gap between US and euro-area assets can influence cross-border capital flows.

If US yields remain elevated while comparable European yields fail to rise at the same pace, the dollar may retain an advantage. However, the relationship is not automatic. Fiscal concerns, weakening US growth or reduced demand for US assets could limit the dollar even when policy rates remain high.

Why the ECB Rate Increase Did Not Stop the EUR/USD Decline

The European Central Bank had also raised its three key interest rates by 25 basis points on September 10. The move took the deposit facility rate to 2.50%, the main refinancing rate to 2.65% and the marginal lending rate to 2.90%, effective September 16.

The ECB cited inflation pressures linked partly to the conflict in the Middle East and projected headline inflation of 3.0% in 2026. It also retained a meeting-by-meeting approach and avoided committing to a predetermined policy path.

Although the ECB decision initially provided some support for the euro, the Fed’s subsequent message appeared more forceful. The gap between the US target range and the ECB deposit rate remains substantial, while the US economy has continued to show resilient spending and investment. Those differences have encouraged traders to favour the dollar despite tightening by both central banks.

The euro could still benefit if incoming euro-area data improve or if the ECB signals that additional increases are likely. For now, however, the immediate market focus remains on whether the Fed follows its September move with another increase.

EUR/USD Technical Levels Put 1.1350 in Focus

The technical structure weakened when EUR/USD fell below the 1.1523 area and then broke beneath 1.1480. These former support levels may now act as resistance during any short-term rebound.

Initial downside attention is likely to centre on approximately 1.1420, where a former descending resistance line may provide support. Below that level, the wider 1.1325–1.1350 zone becomes more important. This area combines a previous swing low with a commonly monitored retracement region, making it a potential test for bearish momentum.

A sustained break below 1.1325 would increase the risk of a deeper decline toward 1.1200. However, technical levels identify areas where market behaviour may change; they do not guarantee a reversal or continuation.

On the upside, a recovery above 1.1480 would be the first sign that selling pressure is easing. EUR/USD would then need to reclaim the 1.1523–1.1535 region to improve the near-term picture. A stronger move through that zone could bring 1.1575 back into focus.

Momentum indicators also require caution. The relative strength index has approached oversold territory, which indicates strong downside momentum but can also leave the pair vulnerable to a corrective rebound if dollar buying loses intensity.

What Could Change the EUR/USD Outlook?

The next phase for EUR/USD will depend mainly on how economic data affect expectations for the Fed and ECB. Strong US employment, spending or inflation figures could reinforce the case for another Fed increase and keep the dollar supported. Persistent energy-price pressure could also complicate the inflation outlook on both sides of the Atlantic.

By contrast, softer US activity or a clear easing in inflation could reduce expectations for additional tightening. Because markets have already moved toward a hawkish policy path, data that fail to confirm that view may trigger a partial reversal in Treasury yields and the dollar.

Euro-area inflation, growth and business surveys will also matter. Evidence that the European economy is absorbing higher energy costs without a severe slowdown could give the ECB more room to maintain a restrictive stance. A sharper loss of momentum would make further tightening harder to justify and could leave the euro exposed.

EUR/USD Outlook Remains Fragile Below 1.1523

EUR/USD remains under pressure after the Fed’s rate increase strengthened the dollar and pushed US short-term yields higher. The break below 1.1523 and 1.1480 has weakened the near-term technical picture, placing 1.1420 and the 1.1325–1.1350 area in focus.

The bearish scenario is not assured. Much of the Fed’s hawkish message is now reflected in market pricing, and any disappointment in US data could limit further dollar gains. Until EUR/USD reclaims the 1.1523–1.1535 region, however, rebounds may struggle to develop into a broader recovery.