Investing.com -- EUR/USD dropped sharply falling to its lowest level in more than three months, after Janet Yellen brought a December rate hike into play with hawkish comments before a Congressional committee on Wednesday.
The currency pair traded in a broad range between 1.0844 and 1.0968, before settling at 1.0863, down 0.0101 or 0.92% on the session. EUR/USD has closed lower in each of the last three sessions and five of the last eight trading days. Since surging above 1.14 in mid-October, the euro has tumbled by more than 5% against the dollar. During Wednesday's swoon, EUR/USD plunged to levels not seen since late-July.
EUR/USD likely gained support at 1.0808, the low from July 20 and was met with resistance at 1.1489, the high from Oct. 14.
In testimony before the House Financial Services Committee on Wednesday morning, Yellen noted that the U.S. economy is "performing well," amid solid increases in domestic spending, as some of the downside risks related to the global economic slowdown over the summer have faded. The Federal Open Market Committee, Yellen said, also expects long-term inflation to move toward its targeted goal of 2%, as temporary drags from a stronger dollar and lower energy prices recede.
The U.S. Department of Labor's Bureau of Labor statistics will release two monthly national employment reports before the FOMC next meets in December, including one on Friday. The Commerce Department's Bureau of Economic Analysis will also release its second estimate of U.S. third quarter GDP and its October report on Personal Income and Outlays later this month.
"If the incoming information supports that expectation then our statement indicates that December would be a live possibility. Importantly, we've made no decision about it," Yellen said in her testimony.
Yellen emphasized that lift-off might be justified in December to ensure that the Fed moves deliberately over the next year when it finally decides to abandon a zero interest rate policy. An internal memo leaked by the Fed in June indicated that the FOMC anticipates that its benchmark Federal Funds Rate will increase to 1.26% over the next year, a level which would require three to four rate hikes before next summer.
"The committee does feel that moving in a timely fashion if the data and outlook justify such a move is a prudent thing to do because we will be able to move at a more gradual and measured pace," Yellen added. "We fully expect that the economy will evolve in such a way that we can move at a very gradual pace and of course after we do so we will be watching very carefully whether our expectations are realized."
Following Yellen's comments, the CME Group's (O:CME) Fed watch placed the odds of a December rate hike at 60%, up from 52.3% a session earlier. Yields on the U.S. 2-Year also surged to an intraday-high of 0.82%, their highest level since 2011.
Currency traders also digested comments from European Central Bank president Mario Draghi on the increasing likelihood that further stimulus measures could be needed by the ECB's Governing Council in order to stave off deflation. On Tuesday, Draghi argued that the ECB's comprehensive €1.1 trillion bond-buying program continues to have a favorable impact on credit availability for firms and households throughout the euro zone. The Governing Council is widely expected to increase the scope of the asset-purchasing program and lower interest rates when it meets next in December.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, surged more than 0.85% to an intraday high of 98.14, reaching a fresh 10-week high.