EUR/USD at Crossroads as Fed, ECB Tighten Interest Rates

The EUR/USD pair is at a critical juncture as it enters Q4 2026, facing challenges from both the Federal Reserve and the European Central Bank. The Fed has raised interest rates for the first time since 2023, with a 25 basis point increase to 3.75%-4.00%, while the ECB has also hiked rates twice this year to combat inflation pressures.

The policy backdrop remains favorable for the US dollar, but the relative pace of Fed and ECB tightening will be crucial for EUR/USD's performance through Q4. The pair has reversed more than 3% from its August high, testing major support levels at around 1.1355-94.

Momentum is deteriorating into the quarterly close, with monthly momentum falling to its lowest level since March 2025. A break below this threshold could signal a deeper correction within the broader uptrend from 2022.