Investing.com -- EUR/USD fell slightly on Tuesday to drop to fresh one-month lows, as euro zone manufacturing activity last month expanded at its slowest pace in a year, intensifying the pressure on the European Central Bank to inject stronger easing measures at a highly-anticipated meeting next week.
The currency pair traded between 1.0835 and 1.0894, before settling at 1.0868, down 0.0018 or 0.17% on the session. The euro has fallen against the dollar in each of the last three sessions and 11 of the last 13. Since surging to three-month highs on February 11, the euro has plummeted by more than 3.75% against its American counterpart.
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 Tuesday morning, Markit said its Purchasing Managers' Index for euro zone manufacturers fell 1.1 points in February to 51.2, as considerable price cuts failed to create a demand spike in new orders. It came one day after the EU's statistic bureau said consumer prices throughout the zone fell by 0.2% on an annual basis in February, falling back into deflation for the first time in four months. As a result, the Organisation for Economic Cooperation and Development (OECD), as well as the International Monetary Fund and the World Bank have lowered their annual growth outlook for the area.
The release of the disappointing economic data could compel ECB president Mario Draghi to use all of the tools at his disposal next Thursday to help jumpstart the European economy. At next week's meeting, the ECB Governing Council could lower its deposit and marginal lending facility rates and extend the scope of its comprehensive quantitative easing program. The program involves the purchase of €60 billion a month of assets by the central bank in order to increase the amount of money supply available for banks to lend money to businesses and individuals. Large-scale easing initiatives also typically push interest rates lower, reducing domestic investments by foreign purchasers and weakening the local currency against its main rivals.
Separately, improved unemployment data released on Tuesday provided some signs of encouragement. In January, euro zone unemployment fell by 0.1% to 10.3%, falling to its lowest rate since August, 2011. Meanwhile, unemployment in the EU dropped 0.1 to 8.9%, its lowest level since 2009.
In the U.S., the dollar moved higher after the ISM reported that February PMI rose 1.3 points to 49.5, slightly above consensus forecasts of a 0.3 increase to 48.5. Employment, which has hovered near seven-year lows in recent months, showed some signs of breaking through after jumping 2.6 points to 48.5. Production also soared 2.6 points last months to 52.8. While new orders stayed flat at 51.5, there were signs of demand growth within the report, as 12 of 18 industries reported an increase on the month.
Elsewhere, construction spending surged 1.5% in February and by more than 10% on an annual basis due to an uptick in highway & street spending, while U.S. auto sales soared 8% to a 15-year February high. As consumers take advantage of deep discounts at the pump and low borrowing rates, analysts expect yearly auto sales to eclipse last year's record-high of 17.5 million vehicles.
The Federal Reserve is closely observing incoming economic data, ahead of its next interest rate decision on March 16. Last week, hawkish policymakers on the Federal Open Market Committee (FOMC) received positive news when reports indicated that core inflation in January rose by the highest annual level in three years. The Core PCE Index, the FOMC's preferred gauge, rose by 1.7%, hitting the high end of the FOMC's 2016 median forecast.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, rose to three-week high at 98.59, before falling slightly to close at 98.34, up 0.11%.