Investing.com -- EUR/USD inched up in narrow, range-bound trading on Monday, as investors remained cautious ahead of a likely interest rate hike by the Federal Reserve later this week.
The currency pair wavered between 1.0946 and 1.1049 in Monday's session, before closing at 1.0993, up 0.12% on the day. EUR/USD has been relatively flat since surging more than 3% on December 3 after the European Central Bank spooked global currency markets by approving only limited easing measures with its comprehensive bond buying program at a closely-watched meeting in Frankfurt. Over the last month of trading, the euro is up by more than 2% against the dollar.
EUR/USD likely gained support at 1.0538, the low from Dec. 3 and was met with resistance at 1.1344, the high from Oct. 21.
Investors have had ample time to price in a rate hike after a host of major policymakers, including Fed chair Janet Yellen, began to send strong signals last month that the U.S. central bank could raise short-term interest rates for the first time in nearly a decade. The Federal Open Market Committee opted to leave rates at near-zero levels earlier this fall amid severe global economic struggles, but will likely reverse course on Wednesday as the headwinds restraining economic growth continue to fade. A succession of strong employment data over the last two months has also prompted a wave of hawkish comments from key FOMC members.
On Monday, the CME Group's (O:CME) FedWatch placed the probability of a rate hike at 81.4%, up slightly from Friday's level of 79.4% at the close of trading. The tool, which is based on the CME Group's 30-day Fed Fund futures prices, is used to express the market's view on the likelihood of changes in short-term interest rates.
The Federal Funds Rate, the Fed's benchmark rate offered on interbank, overnight loans, has remained at its current level between zero and 0.25% since December, 2008, shortly after the start of the Financial Crisis. Any increase in the targeted range for the Federal Funds Rate is expected to be modest at 25 basis points. The FOMC last approved a rate hike in June, 2006. Yellen has continually asserted that the timing of lift-off will pale in comparison to the gradual path of upward moves over the next year.
Along with Wednesday's rate hike decision, the FOMC will also release its quarterly economic projection for the next several years. The projection includes forecasts for U.S. GDP, civilian unemployment and the PCE Price Index, as well as estimates on the timing of its next change in the Federal Funds Rate. In September, the FOMC projected that the Fed Funds Rate would reach 1.4% in 2016 and 2.6% in 2017 respectively, according to its median forecasts.
A rate hike is viewed as bullish for the dollar as foreign investors pile into the greenback in order to take advantage of higher yields.
Yields on the U.S. 10-Year, meanwhile, surged by more than eight basis points on Monday to 2.225%. In Friday's bond rout, yields on U.S. 10-year Treasuries fell by 14 basis points to 2.132%, suffering one of its worst sessions of the year.
The U.S. Dollar, which measures the strength of the greenback versus a basket of six other major currencies, experienced little fluctuation on Monday, closing at 97.72, down 0.02% on the day.