Investing.com -- EUR/USD rose considerably on Monday, amid weak global manufacturing data and further indications from the Federal Reserve that it will continue to raise interest rates gradually during its first tightening cycle in nearly a decade.
The currency pair traded in a broad range between 1.0825 and 1.0913, before settling at 1.0885, up 0.0032 or 0.55% on the session. After halting a modest, two-day losing streak, on Monday the euro has now closed higher against the dollar in five of the last seven sessions. Over the last month of trading, the euro is relatively versus its American counterpart, up 0.26% for the new year.
EUR/USD likely gained support at 1.0538, the low from December 3 and was met with resistance at 1.1496, the high from Oct. 15.
On Monday morning, the Institute for Supply Management said that its manufacturing composite index inched up 0.2 from a downwardly revised 48.0 to 48.2, slightly below consensus forecasts for a 48.3 reading. It marked the fourth consecutive month of contractions, extending one of the most dismal stretches since the Great Recession. Within the report, backlog orders continued to lag, coming in at 43.0, amid weak demand for exports. While personal income jumped by 0.3% in December, extending gains from the previous month, consumers for the most part held on to the increased earnings. At the same time, consumer spending remained unchanged for the month, following a surge of 0.5% in November.
The U.S. Department of Commerce also said on Monday that its Core Price Consumption Expenditures (PCE) index gained 1.4% on an annual basis up from 1.3% a month earlier. The Core PCE index, which strips out volatile food and energy prices, is the Federal Reserve's preferred gauge on inflation.
Last week, the Fed cited a weak inflation outlook as a main factor in holding its benchmark Federal Funds Rate steady at a target range between 0.25 and 0.50%. It came amid soft GDP figures for the fourth quarter, when the U.S. economy only grew by 0.7% for the final three months of 2015. A model from the Federal Reserve Bank of Atlanta, released on Monday, forecasts seasonally adjusted GDP growth of 1.2% for the first quarter, as well as upwardly revised estimates of 1.0% for last year's final quarter.
Investors also continued to react to Friday's unexpected move from the Bank of Japan to lower interest rates into negative territory in an unprecedented action from the Japanese central bank. With the surprising decision, two of the three largest central banks in the world are now offering negative interest rates for the first time on record. The easing measures are expected to help strengthen the dollar, while implicitly tightening the monetary policy cycle for the Federal Reserve even if it continues to leaves rates unchanged. Earlier last month, European Central Bank president Mario Draghi indicated that the ECB could approve further easing measures when it meets again in March.
In somewhat of a reversal on Monday, Fed governor Stanley Fischer strongly hinted that the U.S. central bank's monetary policy will remain accommodative in the near-term future, while the Fed raises rates gradually. Speaking at a Council of Foreign Relations luncheon on Monday, Fischer noted that further declines in oil prices and a persistently strong dollar could suggest that inflation will remain lower than the Fed previously anticipated. Fischer eventually expects inflationary pressures to rise once temporary factors from the oil downturn and the appreciation of the dollar dissipate.
Before last week's interest rate decision from the Fed, the U.S. central bank was expected to raise short-term interest rates as much as four times this year as it embarks on its first tightening cycle in nearly a decade.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell sharply by more than 0.50% to an intraday low of 99.01 on Monday before closing at 99.05. The index remains near 12-month highs from December, when it eclipsed 100.00.