The widening interest rate differential between the Federal Reserve and European Central Bank remains the dominant driver of EUR/USD positioning, with the Fed’s September hike to a 3.75–4.00% target range and market pricing for further tightening through year-end contrasting the ECB’s 2.50% deposit rate. Persistent U.S. inflation pressures and resilient growth have supported higher Treasury yields, while euro-area concerns over French fiscal deficits and elevated borrowing costs have weighed on the single currency, pushing the pair to 17-month lows near 1.116 in early October. Recent ECB communications signal a more measured pace ahead, widening the policy gap to roughly 150 basis points. Key near-term catalysts include the late-October FOMC and ECB decisions, September U.S. and eurozone inflation prints, and any revisions to growth or rate projections that could shift trader expectations for the remainder of 2026.