Diverging central bank policies remain the dominant driver for EUR/USD levels through 2026, with the Federal Reserve’s September rate hike to the 3.75-4.00% range and elevated December hike odds contrasting the ECB’s deposit facility rate at 2.50% and tempered expectations for further tightening. This 150-plus basis point policy gap has widened the U.S.-German 10-year yield spread to around 175 basis points, bolstering dollar demand. Eurozone inflation near 3.8% and French fiscal pressures, including widening OAT-Bund spreads above 140 basis points, have added downside pressure, pushing the pair to 17-month lows near 1.12. Traders are watching the October 14 U.S. CPI release and the ECB’s October 29 decision for signals on whether the rate differential narrows or persists into year-end.