Investing.com -- EUR/USD rose broadly on Tuesday, reversing territory late in the session after the chief economist of the World Bank warned of the disastrous consequences a premature rate hike from the Federal Reserve could have on fledgling markets worldwide.
The currency pair wavered between 1.1153 and 1.1229 on a choppy day of trading before settling at 1.1203, up 0.0033 or 0.30% on the session. After falling below 1.11 late last week, the euro has now closed higher against the dollar on four consecutive sessions. Over the last month of trading, the euro is up by nearly 2.2% versus its American counterpart.
EUR/USD likely gained support at 1.1086 the low from September 3 and was met with resistance at 1.1333, the high from Sept. 1.
Speaking exclusively to the Financial Times, World Bank chief economist Kaushik Basu indicated that a rate hike by the Fed next week could trigger a widespread crisis in emerging markets, pushing capital away from their economies and potentially creating sharp fluctuations in their currencies. It came after officials from the International Monetary Fund issues similar warnings on the severe ramifications that could result from a rate hike by the Fed. In June, the World Bank hinted that it may need to revise its growth projection of 2.8% for the global economy for 2015 due to mounting worries of slowing growth in both Brazil and China.
Elsewhere in China, its dollar-denominated exports fell sharply by 5.5% on a year-over-year basis in August, exacerbating concerns about persisting weakness in the world's second-largest economy. Imports, meanwhile, tumbled 13.8% on a yearly basis, producing a trade surplus of $60.24 billion. The Shanghai Composite index still rallied by more than 4.5% in the final hour of trading to erase losses from Monday's session and close up by approximately 3%.
On Monday, the index closed down by more than 2.5% as news reverberated that China revised its GDP growth rate for 2015 downward from 7.4% to 7.3%. Many economists expect Chinese GDP growth to fall below 7% for the third quarter after barely reaching the threshold over the first two quarters of the year. China is currently experiencing its lowest rate of economic growth in more than a decade.
For the most part, currency traders are reluctant to execute any major trades before the Federal Open Market Committee completes its two-day September meeting on Sept. 17. Analysts believe there is a 50-50 chance the FOMC could raise its benchmark Federal Funds Rate for the first time since 2006.
At a panel discussion late last month in Jackson Hole, Wyoming, Fed vice chairman Stanley Fischer indicated there is good reason to believe that inflation will move higher as the temporary forces restraining it continue to "dissipate further." Core PCE inflation, the Fed's preferred gauge of price increases, has still remained under its long-term targeted goal of 2% for every month over the last three years. The core reading of PCE inflation strips out the heavy impact of food and energy prices.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, reached an intraday high of 96.25 before falling back to 95.88, down 0.37% at the close.
Also on Tuesday, the U.S. Department of Treasury auctioned off $24 billion of 3-year notes at a high yield of 1.056%.