Sept 16 (Reuters) - The euro has been trading with a sideways bias versus the dollar since June 2025. So, what will it take to shake EUR/USD from its range?

Several established drivers could yet trigger a more sustained directional move for EUR/USD, away from the 1.1325–1.2084 range according to EBS prices.

Interest rate differentials remain the most direct lever. The ECB has turned more hawkish, with policymakers saying tighter monetary policy may be required to contain inflation that's stuck above 3%, and officials expecting to raise interest rates further, with another increase possible as soon as next month. The Fed, by contrast, has held steady for most of the year, keeping the benchmark rate at a target range of 3.50% to 3.75%. That said, rate-hike bets have recently increased for this week's meeting, with FedWatch predicting a 66% chance the Federal Open Market Committee will hike by a quarter-point at its upcoming Wednesday meeting.

A break above 1.2084 would likely need the Fed to pivot toward cuts while the ECB holds firm — narrowing the real-yield gap. A break below 1.1325 would require the opposite: renewed Fed hikes or ECB capitulation. Much could depend on the message late in Wednesday's session. Chair Warsh has been notably tight-lipped on forward guidance, having been adamant about not providing markets with forward guidance, preferring that officials have a "good family fight" over the data at FOMC meetings. If Warsh surprises with no hike, or maintains this opacity even after a hike, the dollar could come under pressure.

Growth divergence is the second pillar. Eurozone growth has surprised higher, with ECB staff projecting growth of 0.9% for 2026 and 1.4% for 2027, an upward revision reflecting the resilience of the euro area economy. Meanwhile, U.S. GDP growth has decelerated to 1.5% quarter-over-quarter, even as core inflation stays sticky. A widening or narrowing of this gap could force EUR/USD outside its range.

U.S. fiscal policy is a structural wild card — large shifts in Treasury issuance, fiscal expansion, or foreign reserve diversification could weigh on the dollar independent of the rate cycle, potentially overriding rate differentials entirely.

Finally, geopolitical shocks tied to energy remain central. The ECB has noted the war in the Middle East is generating inflation pressures, with implications depending on the intensity and duration of the energy shock. A major escalation could pressure EUR/USD lower; a resolution could unlock a move higher.
EUR/USD monthly chart:

(Peter Stoneham is a Reuters market analyst. The views expressed are his own)