Investing.com - The euro was trading at session lows against the dollar on Tuesday after data showed that the U.S. consumer price index rose more strongly than expected in May, bolstering expectations for a more hawkish stance on interest rates from the Federal Reserve.
EUR/USD was down 0.24% to 1.3540, holding above the four month trough of 1.3502 struck earlier this month.
The pair was likely to find support at 1.3500 and resistance at 1.3586, the session high.
The Labor Department said U.S. consumer prices rose at an annual rate of 2.1% last month, while prices were up 0.4% from a month earlier. It was the fastest increase in annual inflation since October 2008.
Market expectations had been for an annual increase of 2.0% and a monthly rise of 0.2%.
An uptick in inflation levels would give the U.S. central bank less leeway to keep interest rates on hold at record lows as the economic recovery continues to gain momentum.
Investors were looking ahead to the outcome of the Fed’s two-day policy meeting on Wednesday, as they awaited fresh indications on the timing of possible interest rate increases.
The Fed was expected to scale back its asset purchase program by another $10 billion, but is not expected to raise borrowing costs until mid-2015.
A separate report showed that both U.S. housing starts and building permits fell in May, pointing to underlying weakness in the housing sector.
The Commerce Department reported that housing starts dropped by 6.5% last month to1.001 million units, while the number of building permits issued last month fell by 6.4% to 991,000 units.
Earlier Tuesday, a report showed that German economic sentiment deteriorated unexpectedly in June, reflecting the recent slowdown in the German economy after a strong start to the year.
The ZEW index of economic sentiment came in at 29.8 this month, down from 33.1 in May. It was the lowest reading since December 2012.
Elsewhere, the euro was slightly higher against the yen, with EUR/JPY easing up 0.16% to 138.42, holding above the four month low of 137.71 set late last week.
The euro has weakened broadly since the European Central Bank announced stimulus measures earlier this month, in a bid to ward off deflation and spur growth in the euro zone.