EUR/USD Plunges to Two-Month Low Amid Worsening Policy Gap

The euro is struggling to compete against the US dollar as both central banks tighten their monetary policies in response to high inflation. The EUR/USD pair has fallen to a two-month low, trading at 1.1401 by 15:00 GMT on Wednesday.

The Fed's decision to raise its federal funds target to a 3.75% to 4.00% range on September 16 and the ECB's deposit rate hike to 2.50% on September 10 have created a significant policy gap between the two economies.

The US economy is growing at a much faster pace than the euro area, with annualized growth near 5% and a 4% third quarter. This has led to higher inflation pressures, which require tighter policy, supporting the dollar.