Investing.com - Better-than-expected data out of the U.S. service sector sparked demand for the dollar on Wednesday and trimmed earlier lows sustained on a soft private-sector jobs report, leaving investors to conclude that harsh winter weather may have bruised recent economic indicators and not weak demand.
In U.S. trading, EUR/USD was trading at 1.3523, up 0.04%, up from a session low of 1.3494 and off a high of 1.3555.
The pair was likely to find support at 1.3478, Monday's low, and resistance at 1.3717, the high from Jan. 27.
The greenback came off earlier lows after the Institute for Supply Management reported that its services purchasing managers’ index came in at 54.0 in January, up from 53.0 in December.
Analysts had expected the index to rise to 53.7.
The employment component of the index rose to its highest level since November 2010.
The data eased concerns over a possible slowdown in U.S. recovery after Monday’s ISM manufacturing index showed that activity slumped to a seven-month low in January, which was partially the product of rough winter weather.
Elsewhere, payroll processor ADP reported that private-sector non-farm payrolls rose by 175,000 in December, below expectations for an increase of 180,000, which weakened the dollar earlier though investors concluded that a string of blizzards and bitter cold snaps may have prompted businesses to put off hiring early this year.
Friday’s official U.S. jobs report is expected to show that jobs growth rebounded in January after unseasonably cold weather in December kept gains down to 74,000.
Still the dollar didn't rally, as winter weather can still slow growth at a time when the U.S. economy continues to battle headwinds and remains in need of Federal Reserve stimulus tools.
Soft economic indicators have reminded investors that the Federal Reserve will trim its USD65 billion monthly bond-buying program on a gradual basis, or even leave it on hold if need be, while policy tightening remains far off on the horizon.
Stimulus tools tend to weaken the dollar by suppressing interest rates to spur recovery.
Meanwhile in the eurozone, data revealed showed that euro zone retail sales fell at their fastest rate since May 2011 in December.
Retail sales were down 1.6% from November and fell 1% on year-over-year basis, according to Eurostat. Market expectations had been for a 0.5% monthly decline and a 1.5% annual gain.
Sales of food, drink and tobacco fell 1.4%, while sales of non-food products dropped 1.8%.
The poor data stoked deflationary concerns, especially after data last week revealed that the annual rate of inflation slowed to 0.7% in January. The report reawakened fears that the European Central Bank may hold off on tightening policy to stave off deflation.
The euro was up against the pound, with EUR/GBP gaining 0.11% to 0.8290, and down against the yen, with EUR/JPY trading down 0.20% at 137.13.
On Thursday, the European Central Bank is to announce its benchmark interest rate. The announcement is to be followed by a press conference with President Mario Draghi.
The U.S. is to publish data on its trade balance as well as its weekly report on initial jobless claims.