Investing.com -- EUR/USD fell slightly on Tuesday closing the month broadly lower, even as mixed U.S. data did little to persuade the doves at the Federal Reserve that the economy has improved enough to necessitate an interest rate hike next month.
The currency pair traded in a tight range between 1.1122 and 1.1173 before settling at 1.1127, down 0.0021 or 0.17% on the session. For the month of May, the euro plummeted more than 2.85% against the dollar, falling sharply from its level at the start of the month when it surged to nine-month highs above 1.16. Despite the recent pullback, the euro is still holding onto considerable gains from the start of the year. Since opening the year at 1.08, the euro is up by approximately 2.5% over the first five months of 2016.
EUR/USD likely gained support at 1.1055, the low from March 15 and was met with resistance at 1.1434, the high from May 12.
On Tuesday morning, the U.S. Commerce Department's Bureau of Economic Analysis said its Personal Consumption Expenditures (PCE) Price Index rose by 0.3% in April, in line with consensus estimates. It came as consumer spending surged 1.0% on the month, considerably above a downwardly revised flat reading from March. At the same time, personal income increased by 0.4% on the month also line with analyst's forecasts.
The Core PCE Index, which strips out volatile food and energy prices, ticked up 0.2% from March's reading, one month after experiencing slight gains of 0.1%. On an annual basis, the core reading rose by 1.6% unchanged from the previous month. The Core PCE Index is the Fed's preferred gauge of long-term inflation. While inflation has firmed somewhat in recent months, it has stubbornly remained under the Fed's 2% targeted objective for the majority of the last three years.
There is currently a 20.6% probably the Fed will raise interest rates in June, according to CME Group's (NASDAQ:CME) Fed Watch tool, up from 11.3% a month earlier. The Federal Open Market Committee (FOMC) has left its benchmark Federal Funds Rate at its current level between 0.25 and 0.50% in each of its first three meetings this year. Some analysts believe the FOMC could wait until after a controversial Brexit vote on June 23 before approving its first rate hike of the year. Following the FOMC's July meeting, the CME Group says there is a 48.6% chance that the target range of the Fed Funds Rate will be between 0.50 and 0.75%, up from 26.0% a month ago.
Any rate hikes by the Fed this year are viewed as bullish for the dollar, as foreign investors pile into the greenback in order to capitalize on higher yields.
In the euro area, inflation in May fell by 0.1% on a yearly basis, extending losses from April when it inched down by 0.2%. It came as inflation in France dropped by 0.1% in May year-over-year, following similar 0.2% declines a month earlier. In Italy, meanwhile, inflation in May decreased by 0.3%, building on losses in April of 0.5% over the prior 12 months.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, gained more than 0.15% to an intraday high of 95.89, before settling at 95.84. The index is still down by more than 4% since early-December