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A free scan shows the junk files, broken settings and background clutter dragging Windows down - then fixes them in one click.Free scan · Windows 10 & 11Fewer expected Federal Reserve rate hikes can support the euro, but they do not guarantee that it will rise against the US dollar. EUR/USD reflects the expected paths of both the Fed and the European Central Bank (ECB), as well as currency risk and shocks to growth, energy prices and investor sentiment. In September 2026, the ECB reported that the euro had weakened against the dollar since its June projections even as euro-area market-rate assumptions for 2027 and 2028 were revised upward. That apparent contradiction shows why a rate-only explanation is incomplete; it does not identify a single cause for the euro’s move.
Why fewer expected Fed hikes do not guarantee a stronger euro
EUR/USD is a relative price: it shows how many US dollars one euro buys. If markets expect fewer US rate hikes, the expected return on dollar assets may fall relative to euro assets, which can support the euro. But that is only one part of the comparison. The euro can still fall if expectations for ECB rates weaken by more, if investors demand greater compensation for holding euros, or if other developments strengthen the dollar or weigh on the euro-area outlook.
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Markets also respond to changes in expectations, not just to the expected number of hikes. If fewer Fed hikes were already priced in, a new confirmation may have little effect. The relevant question is how the expected returns on euro- and dollar-denominated assets have changed relative to what investors anticipated.
Compare the full ECB and Fed paths
Interest-rate expectations are forward-looking. A useful comparison considers the expected policy paths over relevant maturities, rather than counting anticipated Fed hikes in isolation. A less restrictive expected Fed path can favor the euro, but the same period may bring a change in expected ECB rates that offsets that support. The ECB’s analysis describes exchange-rate levels as reflecting both expected future short-term interest-rate differentials and currency risk premia. Benoît Cœuré’s 2019 explanation of the exchange-rate mechanism sets out that framework.
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Rate expectations are not central-bank promises. In its September 2026 Economic Bulletin, the ECB Governing Council said: “The Governing Council is not pre-committing to a particular rate path.” Market pricing can shift as new data and events change investors’ views. The September 2026 ECB Economic Bulletin provides the statement and its policy context.
Risk premia can outweigh the rate signal
Investors’ willingness to hold a currency can change independently of expected policy rates. When uncertainty rises or risk appetite shifts, the compensation investors demand for currency exposure can move, altering exchange rates even if rate expectations change little.
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The ECB’s account of its February 2026 meeting offers a time-specific example: it said most of the euro’s appreciation since December 2025 had been explained by risk shocks that were dollar-negative, while the effects of euro-area and US policy were smaller and broadly neutral. This describes that episode, not a permanent rule or the cause of every later move. The ECB’s February 2026 meeting account sets out the assessment.
Energy prices and geopolitical events affect both outlooks
Energy costs and geopolitical developments can influence the euro through several connected channels. Higher energy prices may alter the euro area’s inflation and growth outlook, affect expectations for ECB policy, and change how investors assess risk in the region. The ECB’s September 2026 projections linked uncertainty in the outlook to energy-price developments and the conflict in the Middle East. They also discussed possible conflict resolution as one factor that may have supported euro-appreciation paths in option-implied distributions, alongside relative policy expectations. These are possible influences, not a quantified explanation of the euro’s depreciation. The ECB’s September 2026 projections describe those outlook and currency-path considerations.
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The dollar can strengthen even when the euro story is unchanged
Because EUR/USD has two sides, a stronger dollar can push the pair down without a worsening euro-area outlook. The Federal Reserve’s July 2026 Monetary Policy Report said its broad dollar index had increased modestly on net from the start of 2026 through 2 July, amid volatility linked to developments in the Middle East. The report’s broad index is useful context for the dollar leg, but it is not the same measure as EUR/USD and does not explain a particular daily move. The Federal Reserve’s July 2026 report provides that assessment.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Check the measure and the dates before comparing moves
EUR/USD is a bilateral exchange rate. The euro’s nominal effective exchange rate measures its value against a basket of important trading partners, so the two measures can move differently. Dates matter too: ECB figures from different reporting windows should not be treated as if they describe one continuous period.
| ECB comparison | Reported euro move | What the figure describes |
|---|---|---|
| June-to-September 2026 projections comparison | Down 1.0% against the US dollar; down 0.3% in nominal effective terms | Change reported in the September projections, whose exchange-rate assumptions used a 19 August 2026 cut-off. The same projections say euro-area short-term market-rate assumptions for 2027 and 2028 were revised upward relative to June. ECB September 2026 projections. |
| 11 June–9 September 2026 Economic Bulletin review period | Up 1.0% against the US dollar; up 0.4% in trade-weighted terms | A separate review period in the September Economic Bulletin, not the same comparison as the projections figure. ECB September 2026 Economic Bulletin. |
The figures are not contradictory: they use different windows and reference dates. Nor does the projections comparison establish why the euro depreciated. It shows that euro-area rate assumptions and the exchange rate can move in directions that a single-rate narrative cannot explain.
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A practical way to interpret a euro decline
- Specify the period and measure. Identify whether the claim concerns EUR/USD or a trade-weighted euro measure, and state the dates being compared.
- Compare both expected policy paths. Ask what changed in expected ECB rates as well as expected Fed rates, and over which maturities.
- Separate rates from risk. Consider whether uncertainty or risk appetite could have changed currency risk premia during the same window.
- Check euro-area and dollar-side developments. Energy prices, geopolitical events and outlook changes can affect the euro; broad-dollar movements may affect the dollar leg without explaining the bilateral rate on their own.
- Distinguish evidence from attribution. A reported exchange-rate move alongside revised rate assumptions shows that multiple forces are at work; it does not, by itself, prove which force caused the move.
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