EUR/USD is testing the 1.1400 support zone after the US dollar rallied on a Federal Reserve decision that markets read as hawkish even though the Fed's own rate path was more dovish than what traders had priced. The European Central Bank, by contrast, is weighing another hike as soon as October, while fresh eurozone PMI data show resilient growth alongside faster inflation.
Fed hike reads hawkish, but the dot plot says otherwise
The dollar rallied across the board on Wednesday after the Federal Reserve raised interest rates by 25 basis points in a unanimous decision. The Fed also dropped language tying elevated inflation to supply shocks, and its Summary of Economic Projections carried upward revisions to growth and inflation alongside a downward revision to unemployment.
Yet the dot plot pointed the other way. The Fed penciled in just one more rate hike in 2026, with rates staying elevated through 2027 before cuts begin in 2028 — a slower path than the market had priced, which saw one more hike in 2026 and two additional hikes in 2027. Traders have since brought forward October rate-hike expectations, with the probability now sitting around 54%.
Oil prices have eased on de-escalation hopes after Saudi Arabia restarted its exports, and Wednesday's US-Iran talks were described as positive, though no resolution timeline emerged. A further drop in oil or weaker US data could trigger a dovish repricing that unwinds dollar longs.
ECB weighs an October hike as inflation risk builds
The ECB delivered its own 25 basis point hike at the last meeting, lifting the deposit rate to 2.50% on concern that a Middle East-driven energy shock could keep prices elevated for longer. The central bank now projects headline inflation at 3.0% in 2026 and 2.5% in 2027, with both the 2027 and 2028 inflation forecasts revised higher alongside a stronger growth outlook.
ECB sources have indicated that policymakers are already discussing another hike as soon as October if energy prices stay elevated and inflation risks broaden, though Lagarde has not pre-committed, stressing a data-dependent approach.
Eurozone PMIs split between resilience and inflation pressure
Germany's flash composite PMI came in at 53.8 in September, beating the 51.8 forecast and prior reading, as services rejoined manufacturing in expansion territory. According to S&P Global Market Intelligence: "German businesses reported further signs of resilience in September", even as job creation stayed confined to services.
France's rebound was sharper. The flash composite PMI jumped to 51.2 versus a 48.7 forecast, the fastest expansion in just over two years. Input and output prices there also accelerated for the first time since May. Markets have nudged October hike odds to around 47% from 45% following the release.
Technical picture: 1.1400 in the crosshairs
On the daily chart, EUR/USD is approaching the major support zone near 1.1400, where buyers may look to position for a move back toward 1.1560 resistance. A break lower would open the door to fresh bearish bets. On the four-hour chart, a downward trendline still defines the bearish momentum, with the 1.1495 swing high standing as the first target for buyers if they force a break higher.
Sources: Investinglive, Investinglive, Investinglive
Trading involves risk.
Risk Disclaimer
