The widening Fed-ECB policy gap remains the dominant driver of EUR/USD sentiment, with the Federal Reserve raising its target range to 3.75%-4.00% in September 2026—its first hike since 2023—and markets pricing roughly 65% odds of another 25-basis-point move in October. Strong U.S. composite PMI at 58.4 and resilient labor data reinforced expectations for further tightening, lifting the dollar index near 101 and pushing the pair to two-month lows around 1.138-1.140. The ECB has hiked twice this year to a 2.50% deposit rate amid sticky euro-area inflation, yet the roughly 150-basis-point spread favors the dollar. Upcoming October central bank meetings and inflation releases will likely set the near-term trajectory, with any sustained rate differential or U.S. growth outperformance continuing to cap euro gains.