Investing.com -- EUR/USD inched up on Tuesday in a quiet day of trading, as foreign exchange traders await the release of the Federal Reserve's monetary policy statement for potential clues on the pace of tightening the U.S. central bank will embark on for the remainder of the year.
The currency pair traded in a tight range between 1.1072 and 1.1125, before settling at 1.1107, up 0.0006 or 0.06% on the session. The euro closed above 1.11 against the dollar for the fourth consecutive session. Since opening 2016 slightly above 1.085, the euro is up approximately 2.3% against its American counterpart. More immediately, EUR/USD has rallied by more than 1% over the last month.
EUR/USD likely gained support at 1.0538, the low from December 3 and was met with resistance at 1.1335, the high from Feb. 12.
On Wednesday, the Fed is widely expected to leave its benchmark Federal Funds Rate at its current range between 0.25 to 0.50% when it issues its latest monetary policy statement. Since the Federal Open Market Committee (FOMC) last met in January, the U.S. economy has shown signs of improvement amid firming inflation and a surge in nonfarm payrolls. The Core PCE Index, the Fed's preferred gauge on inflation, soared by 1.7% in January on an annual basis, its strongest annual gain in more than a year. Core PCE Inflation, which strips out volatile food and energy prices, has still remained below the Fed's targeted goal of 2% in every month over the last three years.
Although the FOMC signaled in December that it could raise interest rates as much as four times this year, dovish members of the Fed are hesitant to tighten monetary policy as a host of major central banks throughout the world hold rates below zero in a last-ditch attempt to stimulate economic activity. The U.S. central bank may now wait until June or even September before approving its next rate hike, according to current market expectations.
Any rate hikes by the Fed this year are viewed as bullish for the dollar, as foreign investors pile into the greenback in order to capitalize on higher yields.
The Fed's latest rate decision will come days after the European Central Bank approved a comprehensive set of easing measures last week in an effort to bolster flagging economic growth and stave off deflation throughout the euro zone. At the closely-watched meeting, the ECB's Governing Council reduced its deposit by 0.1 to Minus-0.4% and cut its refinance rate by 0.05% to a new record-low of zero. At the same time, the ECB increased the size of its asset-purchasing program by €20 billion to €80 billion a month and extended the initiative by several months through March, 2017.
Also on Tuesday, the dollar fell mildly against the yen after the Bank of Japan kept short-term interest rates at their current level. In a 7-2 vote, the BOJ held its benchmark rate steady at Minus-0.1%, while also leaving its target for its monetary base unchanged. USD/JPY settled on Tuesday at 113.16, down 0.59% on the session.
Yields on the U.S. 10-Year gained one basis point to 1.97%, while yields on the Germany 10-Year added four basis points to 0.32%.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, rose by more than 0.15% to an intraday high of 96.91, before falling back to 96.66 at the close. The index still remains near one-month lows.