Investing.com -- EUR/USD fell considerably on Monday, as currency traders kept a close eye on longstanding economic concerns in China.
The currency pair traded in a broad range between 1.0850 and 1.0970 before settling at 1.0858, down 0.0079 or 0.72% on the session. The euro is virtually flat against the dollar over the first few sessions of the new year after opening 2016 at 1.0860. EUR/USD is coming off a tumultuous year when it tumbled approximately 10% amid a sharp divergence in monetary policy between the Federal Reserve and the European Central Bank.
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.
On Monday, the People's Bank of China (PBOC) attempted to soothe markets by setting the daily fix for the yuan against the dollar dramatically higher in comparison with its level at last week's close. While the Chinese currency surged against the dollar in offshore trade, Chinese equities continued to plunge – extending severe losses from the opening week of the year.
The PBOC set the yuan's midpoint at 6.5626 per dollar on Monday, substantially higher than last Thursday's level when it experienced its worst one-day decline in five months. Over the course of a trading day, the PBOC intervenes to prevent the exchange rate from drifting 2% above or below the midpoint. The PBOC devalued the yuan 1.6% last week, after lowering it by nearly 5% against the dollar in 2015 in an effort to stimulate its economy by boosting exports. Weak manufacturing and service sector data for December exacerbated fears that the world's second-largest economy finished last year with the slowest GDP growth in nearly a quarter-century.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, gained more than 0.25% to an intraday high of 98.91. The index remains near 12-month highs from December, when it eclipsed 100.00. The yuan comprises nearly 20% of the basket, propping up the dollar when its devalued by the PBOC.
Elsewhere, Federal Reserve Bank of Atlanta president Dennis Lockhart indicated in a speech on Monday that there might not be enough economic data available for the Federal Open Market Committee (FOMC) to raise interest rates in the first quarter. Last week, Fed vice chairman Stanley Fischer said in an exclusive interview with CNBC that economic conditions could be appropriate to necessitate four interest rate hikes from the U.S. central bank over the course of this year. On Tuesday morning, Fischer is scheduled to deliver a speech on monetary policy at the Banque de France conference in Paris.
Investors await a closely-watched interest rate decision by the Bank of England on Thursday for further indications on the strength of one of the world's largest economies. Last week, the sterling corporate bond market struggled in the U.K. amid mounting concerns that a referendum on a potential "Brexit," could be held as early as this summer.
Yields on the U.S. 10-Year surged six basis points to 2.18%, while yields on the Germany 10-Year jumped three basis points to 0.54%. On Friday, bond yields on the U.S. 10-year Treasuries closed lower to end their highest weekly decline since early-October.