Investing.com - Data revealing that the U.S. economy barely grew at all during the first quarter of this year softened demand for the dollar in front of the euro on Wednesday despite a better-than-expected report on hiring in the U.S. private sector.
In U.S. trading, EUR/USD was up 0.40% at 1.3867, up from a session low of 1.3778 and off a high of 1.3872.
The pair was likely to find support at 1.3778, the session low, and resistance at 1.3880, Monday''s high.
The Bureau of Economic Analysis reported earlier that U.S. gross domestic product grew at an annual rate of 0.1% in the first quarter, far shy of expectations for a 1.2% growth rate. The U.S. economy expanded by 2.6% in the previous quarter.
The numbers softened the dollar by clouding the fate of U.S. monetary policy.
The Federal Reserve was due to release its latest statement on monetary policy later in the day, and many investors avoided the greenback until the monetary authority announces its decision on interest rates and its monthly bond-buying program.
While the headline growth rate was weak, many investors blamed rough winter weather, pointing out poor exports and investments affected by blizzards.
The data also revealed that consumer spending on services rose to its highest level in 14 years.
Overall consumer spending rose 3.0%, while spending on services rose by 4.4%, though still, concerns that the U.S. economy faces headwinds, weather-related or not, sent investors ditching the dollar on concerns that even as the Fed winds down its monthly bond-purchasing program, interest rates will remain low for some time to come.
Fed bond purchases, currently set at $55 billion a month, weaken the dollar by suppressing long-term borrowing costs, which sends investors to assets like stocks in hope companies take advantage of rising equities indices and invest and hire.
Separately, payroll processing firm ADP said non-farm private employment rose by 220,000 this month, above expectations for an increase of 210,000. March’s figure was revised up to a gain of 209,000 from a previously reported increase of 191,000.
Data also showed that the Chicago purchasing managers’ index rose to 63.0 this month from a reading of 55.9 in March. Analysts had expected the index to improve to 56.7 in April.
Meanwhile in the euro zone, data showed that the annual inflation rate ticked up to 0.7% in April, after falling to a record low 0.5% in March, missing market calls for a 0.8% reading. The European Central Bank targets an inflation rate of close to but just under 2%.
Core inflation, which excludes volatile food and energy costs rose 1% in April, accelerating from 0.7% in March and in line with expectations.
The uptick in inflation was seen as easing pressure on the ECB to take steps to tackle low inflation in the euro zone. Earlier this month the central bank warned that it could launch a "broad-based" asset purchase program if the medium-term inflation outlook deteriorated.
The euro was up against the pound, with EUR/GBP up 0.06% to 0.8213, and down against the yen, with EUR/JPY down 0.11% at 141.61.
On Thursday, markets in the euro zone will be closed for the Labor Day holiday.
The U.S. is to publish the weekly report on initial jobless claims. At the same time, Fed Chair Janet Yellen is to speak at an event in Washington; her comments will be closely watched.
Later Thursday, the Institute of Supply Management is to release a report on manufacturing activity.