Investing.com -- EUR/USD fell by nearly 1% on Monday extending a three-day losing streak, as currency traders digested relatively hawkish comments on the increased possibility of a 2015 interest rate hike from several members of the Federal Open Market Committee.
The currency pair wavered between a low of 1.1181 and a high of 1.1330, before settling at 1.1189, down 0.0110 or 0.97% on the session. The euro has now fallen on three consecutive sessions against the dollar since surging more than 1.3% last Thursday when the Federal Reserve opted to hold short-term interest rates at their current near-zero level for the 55th consecutive meeting. After suffering an eight-session losing streak earlier this month, the dollar has closed higher against the euro in five of the last seven sessions. In spite of the volatile trading, the euro is only down 0.33% versus the dollar over the last month of trading.
EUR/USD likely gained support at 1.0959, the low from August 9 and was met with resistance at 1.1460, the high from Sept. 18.
The Federal Reserve Bank of Atlanta said on Monday morning that 12-month business inflation expectations inched down to 1.7% in September, from its August level of 1.8%. At 1.7% the current rate fell back to its level from the first four months of the year and approached near multi-year lows. Last week, the FOMC downgraded its median inflation forecasts at its September monetary policy meeting to 0.3% for the end of 2015, while lowering inflation expectations for the end of next year to 1.7%. The Federal Reserve now expects that inflation will not reach its 2.0% target until 2018.
Over the weekend, San Francisco Fed president John Williams emphasized that the FOMC's decision to leave rates unchanged for a 55th consecutive meeting was a "close call," providing indications that a rate hike could occur before the end of the year. Addressing a conference on the U.S.-China financial system, Williams said the U.S. labor market could reach full employment in the "near future," even though inflation still remains far below the Fed's expectations.
"Given the progress we've made and continue to make on our goals, I view the next appropriate step as gradually raising interest rates," Williams said.
Other members of the FOMC appear considerably more hawkish. James Bullard, a non-voting member of the committee, told CNBC that he would have dissented if he had a vote last week, citing ample accommodation in the system to offset potential deflation.
"I understand that there are risks out there but you have to take a prudent policy and inch your way back to normal," Bullard said.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, surged roughly 1% to an intraday high of 96.14, its highest level in more than a week., before settling at 96.06. The index has closed higher in each of the last three sessions.
Yields on the U.S. 10-Year jumped seven basis points to 2.20%, while yields on the Germany 10-Year gained two basis points to 0.68%. For the year, the spread between U.S. and German 10-year bonds is virtually flat.
Investors are preparing for the release of a wave of economic indicators later this week that could provide further signals on the direction of the global economy. On Tuesday, the euro zone will issue reports on economic sentiment and consumer confidence for September, a day before China releases its manufacturing index for the month.
At week's end, the U.S. Bureau of Economic Analysis will release its third estimate of U.S. GDP in the second quarter. Real GDP is expected to remain at 3.7% for the quarter.