EUR/USD entered the final stretch of September under heavy pressure after a 2.5% monthly slide for the euro, its sharpest loss against the dollar in 14 months. The pair touched 1.1312 on September 30, the weakest level since May 2025, before recovering toward 1.1350 after softer U.S. inflation data trimmed expectations for another near-term Federal Reserve rate hike.
The immediate catalyst was the U.S. personal consumption expenditures report. Core PCE rose 0.2% in August and 3.0% from a year earlier, below forecasts for 0.3% monthly and 3.3% annual growth, while headline PCE came in at 3.4% versus a 3.7% estimate. That miss pressured the dollar and gave EUR/USD room for a relief bounce.
Even so, the broader backdrop remains fragile. The euro is still dealing with a widening growth gap, energy-related inflation stress across Europe, and lingering doubts over whether the European Central Bank can match the Fed’s policy stance quickly enough to reverse the trend.
Key Facts
- EUR/USD fell to 1.1312 on September 30 before rebounding to around 1.1350 in European trading.
- The pair is down 2.39% over one month, 3.45% year to date, and 3.51% over the past 12 months.
- U.S. core PCE rose 0.2% in August and 3.0% year over year, below expectations of 0.3% and 3.3%.
- The 14-day RSI dropped to 24, its lowest reading since March 13 and a level typically associated with oversold conditions.
- Germany’s preliminary September inflation rate accelerated to 3.3%, above the 3.2% consensus estimate.
EUR/USD Outlook
The main story behind the September decline in EUR/USD has been policy divergence. The Federal Reserve raised rates on September 16 to a 3.75% to 4.00% range, while the ECB lifted its deposit rate to 2.50%. Although both central banks tightened policy, markets judged the Fed to be more willing to keep rates higher for longer, giving the dollar a consistent advantage through most of the month.
That narrative weakened after the latest U.S. inflation figures. A softer core PCE reading pushed Treasury yields lower, with the 2-year yield dropping more than 6 basis points to 4.827% and the 10-year yield falling nearly 4 basis points to 5.217%. Lower front-end yields matter for EUR/USD because they narrow the expected rate gap that has favored the dollar.
At the same time, the euro is receiving some support from renewed inflation pressure within the eurozone. Germany, France, and Spain have all shown firmer price readings for September, reinforcing expectations that the ECB may need to maintain a tightening bias into year-end. For currency markets, that combination of reduced Fed urgency and firmer eurozone inflation creates the conditions for a short-term rebound, even if the larger downtrend remains intact.
EUR/USD may be oversold enough for a relief rally, but a durable reversal still depends on narrowing the policy and growth gap between the United States and the eurozone.
Why 1.1300 and 1.1400 Matter
From a technical perspective, EUR/USD is testing an important inflection point. The break below 1.1350 and then below the previous 52-week low of 1.1325 confirmed strong downside momentum, but the RSI reading of 24 suggests selling may have become stretched. In past episodes, such deeply oversold conditions have often been followed by short-covering rallies.
Support is clustered at 1.1312 and the round 1.1300 level. A daily close below 1.1300 would likely shift focus toward 1.1200. On the upside, 1.1350 is now the first pivot level, followed by resistance in the 1.1375 to 1.1400 zone. If the pair reclaims 1.1400, the next near-term target would be 1.1450.
Implications for Investors
For investors, the near-term question is whether the softer U.S. inflation print marks a real turning point or only a temporary interruption in the dollar’s advance. Currency-sensitive portfolios, especially those with eurozone equity or bond exposure, should watch the next round of inflation and labor market data closely. A weaker dollar would ease pressure on unhedged European assets, while another surge in U.S. yields could quickly restore downside risk for the euro.
The eurozone inflation picture also matters beyond foreign exchange. Germany’s 3.3% September reading, driven in large part by energy costs, underscores how vulnerable European households and companies remain to commodity price shocks. That raises risks for corporate margins, consumer demand, and regional growth, especially if oil and gas prices stay elevated. Investors in European equities may need to distinguish between exporters that can benefit from a weaker euro and domestic sectors more exposed to energy costs and soft consumption.
Bond investors should also monitor the spread between U.S. and European rates. If upcoming eurozone inflation data strengthens expectations for further ECB tightening while U.S. payrolls or inflation cool, the rate differential could narrow enough to support a broader EUR/USD rebound. If, however, U.S. growth remains resilient and the Fed retains a tightening bias, rallies in the euro may prove short-lived.
The next major test is the eurozone flash inflation release, with consensus centered on 3.6%, followed closely by U.S. labor market data. Those releases are likely to determine whether EUR/USD can extend its rebound toward 1.1400 and 1.1450 or resumes its descent below 1.1300.