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1Fix the driver behind crashes, sound loss and screen glitches2Repair Windows errors before they cause bigger problems3Scan for outdated or missing drivers - takes under a minuteFewer expected US rate hikes can support the euro, but they do not guarantee it will rise. EUR/USD reflects the expected paths of both the Federal Reserve and the European Central Bank, as well as currency risk and other forces affecting the dollar and euro area. In September 2026, the European Central Bank reported that the euro had depreciated against the dollar since its June projections even as euro-area short-term market-rate assumptions for 2027 and 2028 were revised upward. That is a useful reminder that interest-rate expectations are only part of the exchange-rate story.
Why fewer expected Fed hikes do not automatically lift the euro
EUR/USD is a relative price: it tells you how many US dollars one euro buys. If traders expect fewer Federal Reserve rate hikes, US interest rates may be expected to end up lower than previously thought. All else equal, that can make dollar assets less attractive relative to euro assets and support the euro.
But “all else equal” rarely describes a currency market. Investors compare the expected paths of rates in both economies, not just the number of US hikes in isolation. They also consider what was already priced in, which time horizons matter, and how much compensation they want for holding each currency amid uncertainty. The European Central Bank’s explanation of exchange rates describes the level as reflecting both expected future short-term interest-rate differentials and currency risk premia: ECB analysis of the exchange-rate mechanism.
Both central-bank paths matter
A less hawkish expected Fed path may be offset if markets also expect the ECB to cut rates more, or to keep rates lower for longer. The euro can therefore fall if the expected return gap moves in the dollar’s favor, even when expected US hikes decline. A change in expectations matters relative to what markets had already priced, not simply as a standalone headline.
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Risk can move currencies independently of rates
Investors may demand more compensation for holding a currency when uncertainty rises, or shift toward currencies they consider safer. In its account of the February 2026 meeting, the ECB said that most of the euro’s appreciation since December 2025 had been explained by risk shocks that were negative for the dollar; the effects of euro-area and US policy were smaller and broadly neutral. That describes that particular episode, not a permanent rule about what moves the euro.
What the September 2026 euro move shows—and does not show
The ECB’s September 2026 projections reported that the euro had depreciated by 1.0% against the US dollar and by 0.3% in nominal effective terms since the June projections. At the same time, the September document said euro-area short-term market-rate assumptions for 2027 and 2028 had been revised upward relative to June. The projection exchange-rate assumptions used a 19 August 2026 cut-off. ECB staff macroeconomic projections, September 2026.
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Those facts show why a rate-only explanation is incomplete: a euro-area rate revision did not prevent the euro from weakening against the dollar over the projections’ comparison window. They do not establish that any single factor caused the entire depreciation. The projection figures and market assumptions are observations for a defined period, not a causal decomposition.
Do not mix exchange-rate windows
A separate ECB review in its September 2026 Economic Bulletin reported that the euro appreciated by 1.0% against the dollar and by 0.4% on a trade-weighted basis over 11 June–9 September 2026. That does not contradict the June-to-September projections comparison: the reference windows and cut-off dates differ. ECB Economic Bulletin, September 2026.
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The distinction matters when reading currency commentary. Always check the start and end dates, whether the figure is bilateral or trade-weighted, and the source’s cut-off date before comparing reported changes.
Other forces that can push EUR/USD lower
Energy prices and geopolitical risk
Energy-price developments and the conflict in the Middle East were major sources of uncertainty in the ECB’s 2026 inflation outlook. Higher energy costs can weigh on the euro through several connected channels: they can alter the euro-area growth and inflation outlook, affect expected ECB policy, and change perceptions of regional risk. The ECB also noted that option-implied currency paths were tilted toward euro appreciation, possibly reflecting relative policy expectations and hopes for a resolution of the conflict. These are plausible channels and interpretations, not a quantified explanation of a specific exchange-rate move. ECB staff macroeconomic projections, September 2026.
The dollar can strengthen on its own
EUR/USD can fall because the dollar strengthens, even if the euro-area outlook is unchanged. The Federal Reserve’s July 2026 Monetary Policy Report said the broad dollar index increased modestly on net from the start of 2026 through 2 July, amid volatility linked to developments in the Middle East. That broad index is useful context about the dollar against a basket of currencies, but it is not the same as EUR/USD and does not explain a particular daily move. Federal Reserve, July 2026 Monetary Policy Report.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How to read the next “fewer Fed hikes” headline
- Identify the comparison. Ask whether the news changes expectations for Fed rates, ECB rates, or both—and over what dates or maturities.
- Check what was already priced in. A headline may describe a widely expected change; the exchange rate responds to how new information alters expectations, not just to the headline wording.
- Separate rates from risk. Consider whether energy, geopolitics, growth prospects, or risk appetite may be changing the compensation investors demand for holding euros or dollars.
- Look at the right currency measure and window. EUR/USD is bilateral, while the euro’s nominal effective exchange rate compares it with a basket of important trading partners. A move in one need not match a move in the other.
- Treat market pricing as an expectation, not a promise. The ECB Governing Council said in its September 2026 Economic Bulletin: “The Governing Council is not pre-committing to a particular rate path.” Policy expectations can change as new information arrives. ECB Economic Bulletin, September 2026.
The practical conclusion is not that rate expectations are irrelevant; it is that a single headline about fewer US hikes cannot determine the euro’s direction. The useful question is how expected returns, risk and new information have shifted on both sides of the exchange rate.
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