The euro dropped below the closely watched 1.1500 level against the dollar on Monday, extending a month-long slide as traders braced for a historically crowded week of central bank decisions that could reshape the interest rate outlook on both sides of the Atlantic.
The pair touched 1.1471, its weakest since last July, as the dollar gained broadly amid escalating tensions in the Middle East.
The move leaves EUR/USD well below the psychological threshold that traders had been watching as key support, and down sharply from its January peak of 1.2019.
A Rare Week for Central Banks
The Federal Reserve opens its two-day policy meeting on Tuesday, with a decision due Wednesday at 2:00 PM ET, followed by Chair Jerome Powell’s press conference at 2:30 PM.
The European Central Bank follows on Thursday, March 19. It is the second FOMC gathering of 2026 and arrives as energy prices spike amid the escalating conflict in the Middle East, with Wall Street tuned in for signals on how concerned the central bank is about inflation and interest rates.
Neither central bank is expected to move rates. CME FedWatch shows a 92%+ probability that the Fed holds rates at 3.50% to 3.75%.
The ECB, meanwhile, held its key rate steady at 2% for a fifth consecutive time at its February meeting, with eurozone inflation having dipped to 1.7% year-on-year in January below its 2% target.
Oil Complicates the Picture
What has changed sharply is the inflation backdrop. Oil prices have remained above $100 per barrel, underscoring Europe’s ongoing vulnerability to energy shocks, with rising energy costs weighing on the trade balance and dampening the euro.
For the Fed, that means Powell faces pointed questions at Wednesday’s press conference about whether the committee’s rate-cut projections still hold.
Economists and market analysts have dramatically adjusted their forecasts over the last three weeks, with some now doubting the Fed will cut rates at all in 2026.
This meeting also includes updated economic projections and the dot plot, which maps where each FOMC member expects rates to go.
The current median dot shows one 25-basis-point cut for 2026.
For the ECB, the reversal in market pricing has been equally dramatic.
Money markets are now fully pricing in an ECB rate hike by July, with roughly an 85% probability of a second increase by December, a sharp shift from late February, when traders had assigned roughly a 40% chance that the ECB would cut rates before year-end.
Why the Euro Is Under Pressure
Europe’s vulnerability to energy shocks is a structural drag on the single currency.
ECB President Christine Lagarde has stressed that policymakers remain committed to preventing a repeat of the sharp price spikes seen in recent years, stating the bank will do everything necessary to keep inflation under control despite the latest surge in energy prices.
At the same time, she noted that Europe is now better positioned to absorb the current energy shock than it was during the 2022 crisis, thanks to stronger policy responses and improved regional resilience.
From a technical standpoint, the break below 1.1500 has reinforced a short-term bearish bias.
The euro has dropped to Target Zone 3 of 1.1434–1.1412 within a downtrend, with the bearish trend expected to continue amid high demand for the U.S. dollar as a safe-haven asset.
A sustained recovery would likely require either a notably dovish Fed or a meaningful improvement in eurozone growth data.
What Markets Are Watching
Attention centres on Powell’s Wednesday press conference for any revision to the rate path, and on Lagarde’s Thursday remarks for signals on how the ECB plans to respond if energy costs continue to climb.
Some analysts have suggested it is entirely plausible that there will be no Fed cuts at all in 2026 after all, a dovish new chairman is only one vote on the FOMC.
Eurozone flash PMI readings and U.S. labor market figures later in the week will also feed directly into expectations.
With geopolitical risk elevated and central bank guidance in flux, volatility in EUR/USD is unlikely to subside quickly.
