Euro Hovers Near Two-Month Low as Hawkish Fed Outlook Pressures

EUR/USD traded weakly around a two-month low on Thursday, last at 1.1373. Expectations of a hawkish Federal Reserve policy outlook continued to build, injecting strong upward momentum into the dollar and pressuring the euro for a fourth consecutive session.

**Hawkish Fed Expectations Dominate FX Sentiment**

Recent solid U.S. economic data have reinforced market views that the Fed will maintain a tightening stance. In contrast, despite hawkish remarks from European Central Bank officials, concerns over Europe's economic outlook continue to drive euro selling pressure. Market reports show interest rate swap markets have priced in expectations of at least one more Fed rate hike this year, while ECB rate hike expectations have cooled amid growth slowdown worries. This divergence in monetary policy outlooks is the core factor weighing on EUR/USD.

**Key Support Level Under Test**

The pair is currently testing the key psychological level of 1.14. Earlier, EUR/USD fell to 1.1396, marking a multi-month low. Market analysts note that if the pair clearly breaks below 1.14 and sustains trading beneath that level, the possibility of further declines toward the 1.13 range could come into investors' view. Technical focus is currently on the strength of support in the current low area.

**Policy Path Divergence in Focus Ahead**

Looking ahead, EUR/USD direction will remain closely tied to the divergence in policy expectations between the two major central banks. According to Commerzbank analysis, the Fed's updated rate outlook has delayed expectations of dollar weakness, and the bank projects EUR/USD may stay near the current range through year-end. Markets are closely monitoring upcoming economic data and central bank officials' remarks to assess the further degree of divergence in U.S. and European monetary policy paths.