EUR/USD Sinks as Fed Rate Hike Expectations Reach New High

The EUR/USD pair is under significant pressure as expectations of a rate hike by the Federal Reserve continue to rise. The current probability of a rate hike at the September 16 meeting stands at approximately 85-90%, following stronger-than-expected U.S. macro data.

The August inflation numbers, including a 0.4% monthly increase and 3.4% yearly increase in CPI, have strengthened the dollar outlook. Additionally, payroll growth of 162K, a 4.1% unemployment rate, and a strong ISM Services PMI reading of 55.4 with a prices component of 72.6 have further reinforced the case for a more hawkish Fed.

The European Central Bank's (ECB) recent rate hike has been largely priced in, while expectations for Fed tightening continue to rise. The ECB now projects average inflation at 3.0% in 2026, 2.5% in 2027, and 2.1% in 2028.

The EUR/USD pair has broken below the critical support zone of 1.1620-1.1600, weakening its near-term technical outlook. However, the proximity of the 1.1520-1.1500 support zone may encourage some profit-taking on short positions ahead of the Fed decision.