EUR/USD Falls Below 1.1450 as Fed Policy and Weak Eurozone Confidence Weigh on Euro

Key Takeaways

• EUR/USD slipped below 1.1450 in Wednesday's Asian session, extending the euro's decline against the US dollar.
• The Federal Reserve raised its target rate to 3.75%–4.00% in September, while the European Central Bank lifted its deposit rate to 2.50%.
• Eurozone consumer confidence fell to -16.5 in September, adding another concern for the single currency.

EUR/USD Drops as Dollar Holds Its Advantage

source: tradingeconomics

EUR/USD traded below 1.1450 on September 23 as the euro remained under pressure from a firmer dollar and weaker eurozone sentiment. The move took the pair toward its lowest level since late July, based on the intraday market snapshot, after the European Central Bank had set its September 22 reference rate at 1.1463 dollars per euro. The ECB reference rate is a daily benchmark, not a real-time market quote.

The immediate question for currency markets is how much further the Federal Reserve and ECB might tighten policy. Both central banks raised rates by 25 basis points this month, but their policy settings and the economic conditions behind them differ. The Fed's target range stands at 3.75%–4.00%; the ECB's deposit facility rate stands at 2.50%. These figures describe different policy instruments and should not be read as a precise measure of the return available from holding either currency.

The euro's latest decline also followed a deterioration in household sentiment across the currency bloc. Together, the interest-rate outlook and weaker confidence data have made it harder for EUR/USD to regain ground, although neither factor alone determines the exchange rate.

Fed Rate Increase Keeps US Policy in Focus

On September 16, the Federal Reserve increased its target range by a quarter percentage point. Its statement described US economic activity as expanding at a solid pace and inflation as still elevated. Policymakers said the increase would support a return to their 2% inflation goal.

The Fed's September projections put the median appropriate federal funds rate at 4.1% at the end of 2026, consistent with another 25-basis-point increase from the current range if realised. That is a projection from individual policymakers, not a promised decision. Incoming inflation, employment and growth figures could change the path.

Expectations for relatively high US interest rates can support the dollar when they lift the prospective return on dollar-denominated assets. The relationship is not automatic: currency prices also reflect how much policy tightening traders have already priced in, changes in economic growth expectations and shifts in demand for safer assets.

ECB Faces a Different Mix of Inflation and Growth Risks

The ECB raised its three key interest rates by 25 basis points on September 10, taking the deposit rate to 2.50% from September 16. It cited inflation pressure linked to the conflict in the Middle East and reiterated that future decisions would be made meeting by meeting. The central bank said it was not committing to a predetermined rate path.

ECB staff projected eurozone headline inflation of 3.0% in 2026 and growth of 0.9% for the year. Those forecasts illustrate the bank's challenge: higher energy costs may keep prices elevated even as they squeeze household spending and business activity. Continued inflation could make another rate rise more likely, while weaker demand could make the timing more difficult.

The Fed and ECB both tightened this month, so the euro's weakness cannot be explained simply by one bank raising rates while the other stood still. The direction of EUR/USD depends more on changing expectations for the next decisions and the relative outlook for both economies.

Eurozone Consumer Confidence Falls to -16.5

The European Commission's September flash estimate put eurozone consumer confidence at -16.5, down 1.0 point from August. EU-wide confidence fell 0.8 point to -15.8. The survey was collected between September 1 and 21, before the full monthly business and consumer survey results scheduled for September 29.

A weaker confidence reading signals that households feel less positive about their financial and economic prospects. It does not by itself establish that retail sales or overall consumption have contracted. For the euro, the concern is that persistent caution among consumers could weigh on domestic demand just as higher energy costs and borrowing rates put pressure on the economy.

The reading gives traders another reason to examine whether the ECB can continue tightening without a sharper slowdown. Conversely, stronger subsequent activity or inflation data could shift expectations toward additional ECB action and offer some support to the currency.

What Could Move EUR/USD Next?

Near-term direction will depend on how US and eurozone data change the perceived policy gap. Firmer US inflation or resilient activity could reinforce expectations of further Fed tightening. Weaker US data could reduce support for the dollar, particularly if they change expectations for the Fed's next meeting.

For the euro, forthcoming eurozone business surveys, the full consumer-confidence release and inflation readings will help clarify whether higher energy costs are mainly pushing prices up, slowing demand, or doing both. The outcome matters because the ECB must weigh above-target inflation against the risk of weaker growth.

EUR/USD's move below 1.1450 reflects pressure from dollar strength and disappointing eurozone confidence, but the outlook remains sensitive to fresh data on both sides of the Atlantic. The next sustained move is likely to depend on whether incoming figures reinforce the Fed's projected tightening path or strengthen the case for further ECB action.