Euro maintains a bullish tone above 1.1600 as traders await the Fed’s interest rate decision for fresh direction.

• EUR/USD extends its recovery for a third consecutive session as easing US-Iran tensions weigh on the US Dollar.
• The shared currency remains supported by the ECB’s relatively hawkish stance, adding further momentum to the pair.
• Still, traders appear cautious ahead of the closely watched FOMC interest rate decision, limiting stronger bullish moves for now.

EUR/USD maintains a positive tone for the third consecutive day, holding comfortably above the 1.1600 level during Wednesday’s Asian session. Still, bullish momentum remains limited as traders prefer to stay cautious ahead of the outcome of the two-day FOMC policy meeting before committing to fresh positions following the pair’s rebound from last week’s two-month low near the 1.1500 psychological area.

Improved risk sentiment driven by optimism surrounding an interim peace agreement between the US and Iran continues to pressure the safe-haven US Dollar, providing support for EUR/USD. Meanwhile, the Euro also benefits from the European Central Bank’s hawkish stance after delivering its first rate hike in three years. The ECB additionally lifted its 2026 inflation forecast to 3%, citing persistent energy-related shocks and widening price pressures across the Eurozone.

Markets are still pricing in around 40 basis points of additional ECB tightening in 2026 despite easing geopolitical tensions in the Middle East. The US and Iran recently agreed to a preliminary peace framework aimed at ending the conflict that escalated earlier this year. The memorandum of understanding includes a 60-day ceasefire, the reopening of the Strait of Hormuz, and future technical negotiations regarding Iran’s nuclear program, though many details of the agreement remain unclear.

At the same time, expectations that the Federal Reserve could still deliver a 25-basis-point rate hike in December continue to limit downside pressure on the US Dollar and cap stronger gains in EUR/USD. Investors are now focused on the Fed’s policy announcement, updated economic projections, and the closely watched dot plot. Market participants will also closely monitor comments from Fed Chair Kevin Warsh during the post-meeting press conference for further insight into the future direction of monetary policy.