EUR Slips After Fed Resumes Rate Hikes to Fight Inflation

Key Moments

Dollar Strengthens as Fed Delivers First Hike in Three Years

EUR/USD dipped toward 1.1460 during early Asian trading on Thursday, with the Euro under pressure against the US Dollar after the US Federal Reserve raised interest rates and pointed to additional tightening in the months ahead. The pair traded lower around 1.1460 as market participants awaited US Initial Jobless Claims data due later on Thursday.

At its September policy meeting on Wednesday, the US central bank increased the federal funds rate by 25 basis points to a target band of 3.75%-4.00%, in line with expectations. This move represented the Fed’s first rate hike in three years and was accompanied by projections indicating that a strong majority of policymakers see scope for another increase later this year.

Fed Chairman Kevin Warsh commented at the press conference that inflation has been “too high … for too long.” Market strategists emphasized that the scale and unanimity of the move, along with the updated rate projections, could reinforce confidence in the central bank’s anti-inflation stance and support the Dollar.

“Today’s decisive hike—supported by all FOMC members and paired with an upgrade in the ‘dot plot’ summary of economic projections—should go a long way toward restoring confidence in the Fed’s commitment to fighting inflation, and help remove a major headwind keeping the dollar restrained,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

ECB Maintains Data-Dependent Tone After Second Hike Since Iran War

In contrast, the European Central Bank has reiterated a cautious, data-driven approach. The ECB lifted its key rates by 25 basis points last week, marking its second move since the Iran war began. However, officials stressed they would not pre-commit to further action, underscoring uncertainty around the future policy path.

ECB President Christine Lagarde stated that inflation in the Eurozone is expected to remain high for an extended period and acknowledged differing views embedded in market-based rate expectations. At the same time, the central bank has been signaling unease with the speed at which markets are pricing in additional tightening.

Rabobank: ECB Pushes Back Against Market Repricing

Strategists at Rabobank noted that the ECB is already challenging the pace of market repricing. They pointed out that in her press conference last week, Lagarde “refused to reaffirm that markets ‘understand the ECB’s reaction function well,’” which Rabobank interprets “as a hint that the market may be moving faster than the policymakers like.”

Rabobank also highlighted that, “even though energy-driven inflation is set to increase further, price pressures are still mostly driven by that supply shock and there is no evidence that inflation is spreading,” suggesting the ECB may be reluctant to endorse the more forceful tightening trajectory implied by current market pricing.

EUR/USD Technical Picture: Bearish Bias Below 100-Day Moving Average

On the technical front, EUR/USD maintains a negative short-term structure on the daily chart as spot remains clearly below the 100-day moving average and the middle line of the 20-day Bollinger Bands. The pair is also trading under the lower Bollinger Band, highlighting persistent downward pressure, while the 14-day Relative Strength Index around 31.9 lingers in oversold territory. This indicates that although the move lower is stretched, selling interest continues to dominate as long as these resistance levels limit rebounds.

On the upside, initial resistance is located around 1.1485 near the lower Bollinger Band, followed by the 100-day moving average at 1.1550, which reinforces the broader bearish configuration. Above this, the middle Bollinger Band at 1.1605 and the upper band near 1.1720 create a wider resistance area where any more pronounced corrective rebound would likely face significant headwinds unless buyers can decisively reclaim and hold above this cluster.