Monetary policy divergence between the Federal Reserve and European Central Bank remains the dominant driver of EUR/USD pricing, with the Fed's September rate hike to the 3.75-4.00% target range and expectations for further tightening into year-end supporting dollar strength. This has widened the policy gap to around 150 basis points versus the ECB's deposit rate near 2.65%, pushing Treasury yields higher and contributing to the pair's decline to the 1.12 area as of mid-October 2026. European fiscal and political uncertainties, including French budget concerns, add downside pressure, while bank consensus targets cluster near 1.15-1.16 by December. Key near-term catalysts include upcoming U.S. inflation releases and central bank communications that could shift rate path expectations.