EUR/USD Slides to Two-Month Low on Widening Policy Gap

The EUR/USD pair continues its downward trend, trading at 1.1377 on Monday morning. This marks a decline of 0.13% from the previous session and represents the lowest level since late July.

The cumulative losses over the past seven sessions total 0.80%, with the monthly loss standing at 1.80%. The twelve-month loss has reached 3.01%

One reason for this decline is the widening policy gap between the Federal Reserve and the European Central Bank. The Fed raised its target range to 3.75%, 4.00% on September 16, while the ECB increased its deposit facility rate to 2.50% six days earlier.

The difference in interest rates, or the policy gap, currently stands at 150 basis points. With the market pricing more Fed hikes than ECB hikes into year-end, this gap is expected to widen further.