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EUR/USD ticked up on a light day of trading, as investors awaited key U.S. GDP and inflation data later this week for further hints on the gradual path of tightening the Federal Reserve could take over the next year.
The currency pair traded between 1.0849 and 1.0939 before settling at 1.0915, up 0.0048 or 0.44% on the session. EUR/USD is relatively flat since the Fed voted unanimously to abandon its zero-interest rate policy at a closely-watched meeting last week. During a volatile month of trading, the euro is up more than 3.25% against its American counterpart.
EUR/USD likely gained support at 1.0538, the low from December 3 and was met with resistance at 1.1496, the high from Oct. 15.
Investors continue to digest last week’s historic decision by the Federal Open Market Committee (FOMC) to raise short-term interest rates for the first time since June, 2006. Citing improved labor market conditions and expectations that long-term inflation will move back toward its 2% objective, the FOMC increased the target range on its benchmark Federal Funds Rate by 25 basis points to a level between 0.25 and 0.50%. The Federal Funds Rate previously remained at record-lows in a zero-bound range for seven consecutive years since the height of the Financial Crisis.
Following the announcement, Fed chair Janet Yellen faced a barrage of questions on how the FOMC could respond to changes in inflationary pressures as it normalizes monetary policy. Echoing sentiments from September, the FOMC does not project that long-term inflation will reach 2% until the end of 2018. While Yellen noted that market-based measures of inflation compensation remain near historically-low levels, she emphasized that the declines over the past 18 months may reflect changes in “risk and liquidity premiums, rather than an outright decline in inflation expectations.”
Inflation has remained under the Fed’s targeted goal for every month over the last three years.
Sunday, Spanish 10-year government bond yields reached their highest level in five weeks after an indecisive election left prime minister Mariano Rajoy with limited governing options to form a majority.
The U.S. Dollar Index, which measures the strength of the greenback against a basket of six other major currencies, fell by more than 0.35% to an intraday low of 98.30 before closing at 98.73, down 0.05% on the session. Earlier this month, the index eclipsed 100.00, reaching its highest level on the calendar year.