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EUR/USD falls sharply, amid diverging data in the U.S. and euro zone

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Investing.com -- EUR/USD fell sharply on Wednesday, as optimistic U.S. employment data combined with disappointing monthly inflation in the euro zone propped up the dollar against its European counterpart.

The currency pair wavered between a low of 1.1158 and a high of 1.1261, before settling at 1.1177, down 0.0072 or 0.64%. EUR/USD remained in a tight holding pattern for the month, not falling below 1.10 or moving above 1.15. For the month of September, the pair was relatively flat falling by only 0.05% over the last 30 days of trading.

EUR/USD likely gained support at 1.1086, the low from Sept. 3 and was met with resistance at 1.146, the high from Sept. 18.

On Wednesday morning, payroll processing firm ADP said U.S. non-farm private employment rose by 200,000 in September, above analysts' expectations of a 190,000 gain. In August, the economy added only 186,000 non-farm private positions, a figure that was downwardly revised from a previous total of 190,000. By comparison, though, the initial government report only showed a spike of 140,000 jobs last month.

The reading provides optimism for Friday's highly-anticipated national employment report, one which is expected to be closely watched by the Fed. Earlier this month, the Federal Open Market Committee indicated that it wanted to see further improvement in the labor market before it rose its benchmark Federal Funds Rate for the first time in nearly a decade. In brief remarks at the Federal Reserve Bank of St. Louis Community Banking Conference on Wednesday, Yellen did not comment on the Fed's current monetary policy. Last week, Yellen indicated that the Fed will likely raise rates before the end of the year barring unforeseen developments in the global economy.

A rate hike by the FOMC is viewed as bullish for the dollar, as it could spur foreign investors to pile into the greenback to take advantage of higher yields.

When the U.S. Department of Labor releases its September jobs report on Friday, it is expected to show that the economy added 203,000 non-farm payrolls this month, up from a subpar gain of 173,000 in August. Restrained by weakness in energy equipment and soft exports, manufacturing jobs fell by 17,000 last month. A downturn in commodities also resulted in a decline of 9,000 in mining positions. The losses were offset by a 33,000 gain in professional and business service jobs, as well as an 11,000 rise in temporarily held positions.

Elsewhere, Eurostat, the statistical body of the European Union, reported that the annual rate of inflation declined by 0.1% in September, below estimates of a flat reading. It marked the first time in six months that deflation in the euro zone moved lower on an annual basis.

Meanwhile, yields on the U.S. 10-Year dipped more than two basis points to fresh monthly lows at 2.035% before closing at 2.039%.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, jumped more than 0.4% to an intraday high of 96.56, before falling back to 96.39. The dollar was held back slightly by disappointing manufacturing data, as the Chicago Purchasing Managers Index dropped nearly six points to 48.7, falling to a four-month low.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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