Investing.com -- EUR/USD fell slightly on Tuesday, as currency traders await the conclusion of the Federal Open Market Committee's two-day October meeting on Wednesday afternoon for further indications on the timing of an interest rate hike by the U.S. central bank.
The currency pair traded in a tight range between 1.1031 and 1.1079, before settling at 1.1040, down 0.0016 and 0.15% on the session. The euro has closed under 1.11 against the dollar in each of the last four sessions. Last Thursday, the euro slumped more than 2% against the dollar after the European Central Bank sent strong indications that it is ready to introduce further stimulus measures before the end of the year.
EUR/USD likely gained support at 1.0854, the low from August 7 and was met with resistance at 1.1496, the high from Oct. 15.
Although the FOMC has hinted that it will likely hold short-term interest rates at its current near-zero level at the meeting, Federal Reserve chair Janet Yellen has still not ruled out a rate hike. The FOMC has left its benchmark Federal Funds Rate at its current level between zero and 0.25% for 55 consecutive meetings. At the FOMC's September monetary policy meeting, Yellen noted that the Fed will begin monetary policy normalization when it has seen "further improvement in the labor market," and it is "reasonably confident" that inflation is moving toward its targeted goal of 2%.
Still, the Fed downgraded its median inflation forecasts at the meeting to 0.3% for the end of 2015, while lowering inflation expectations for the end of next year to 1.7%. The Fed now expects that inflation will not reach its 2.0% target until 2018. Days later, however, Yellen indicated that the timing could be appropriate to raise the Federal Funds Rate before the end of the year, as transitory effects from lower energy prices and a stronger dollar continued to recede.
Shortly after Yellen's comments, though, a dismal U.S. national employment report from September provided greater uncertainty with the timing of a rate hike. The U.S. Department of Labor will release two additional U.S. national employment reports before the FOMC's December meeting, providing the Fed with enough data on the state of the U.S. labor market to help guide their decision. As such, the CME Group's (O:CME) Fed Watch has forecast only a 5% chance of a rate hike in October, versus a 30% probability of one at the FOMC's meeting on Dec. 15-16.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, gained more than 0.10% to an intraday high of 97.06, before closing slightly lower at 97.03.
Yields on the U.S. 2-Year, meanwhile, fell to two basis points to 0.621%. Yields on 2-year government bonds are highly sensitive to any changes in short-term interest rates.