Investing.com - The euro remained slightly higher against the dollar on Tuesday as dovish comments by Federal Reserve Chairman Janet Yellen weighed on the dollar, but the single currency’s gains were limited amid ongoing concerns over the risk of deflation in the euro zone.
EUR/USD touched session highs of 1.3816 and was last up 0.19% to 1.3796.
The pair was likely to find support at 1.3720, Monday’s low and resistance at 1.3825.
The dollar weakened after Ms. Yellen said Monday that “considerable slack” still remained in the U.S. labor market and reiterated that the Fed’s commitment to economic stimulus will still be needed for some time.
The pair showed little reaction after data showed that manufacturing activity in the U.S. expanded at a slower-than-forecast rate in March.
The Institute for Supply Management said its index of purchasing managers rose to 53.7 last month from 53.2 in February. Analysts had expected a reading of 54.0.
The report showed that employment growth slowed, with the employment index falling from 52.3 to 51.1, the lowest level since June 2013.
The euro remained supported as hopes that China will soon take steps to shore up slowing economic growth underpinned risk appetite.
In the euro zone, data on Tuesday showed that the bloc’s manufacturing sector continued to expand last month, but at a slower rate than February.
However, average input costs declined for the second straight month and output prices also dipped, adding to pressure on the European Central Bank to implement fresh policy measures to stave off the threat of deflation in the region.
A separate report showed that the euro zone unemployment rate was 11.9% in February, compared to expectations for 12.0%.
The report came one day after data showed that the annual rate of inflation in the euro area rose 0.5% in March, the lowest since November 2009, and well below the ECB target of just below 2%.
The euro fell to one-month lows against the dollar last week after ECB officials highlighted growing concerns over the threat of deflation in the region.
However some investors expect the ECB to leave monetary policy on hold at its upcoming meeting on Thursday, after Bundesbank head Jens Weidmann said over the weekend that the euro zone is not in a deflationary cycle, and that the slowdown in inflation was due in large part to temporary factors, such as falls in food and energy prices.
The euro climbed to almost three-week highs against the softer yen, with EUR/JPY rising 0.46% to 142.81.
The shared currency was also higher against the pound, with EUR/GBP up 0.38% to 0.8294.
Sterling slipped after data on Tuesday showed that the rate of the expansion in Britain’s factory sector slowed in March, but the recovery remained solid and continued to drive strong job creation in the sector.
Markit said its U.K. manufacturing purchasing managers’ index fell to an eight-month low of 55.3 last month from a downwardly revised 56.2 in February. Analysts had expected the manufacturing index to tick up to 56.7.