Forex - EUR/USD erases losses as market braces for Fed decision

The euro erased earlier losses and firmed against the dollar on Wednesday after investors looked past better-than-expected gross domestic product data released in the U.S. that bolstered the dollar in earlier trading.

The pair held steady as investors waited for the Federal Reserve's announcement on interest rates and monetary policy later Wednesday.

In U.S. trading on Wednesday, EUR/USD was up 0.05% at 1.3269, up from a session low of 1.3214 and off from a high of 1.3300.

The pair was likely to find support at 1.3166, Thursday's low, and resistance at 1.3416, the high from June 16.

The dollar shot up earlier after the after the Bureau of Economic Analysis reported that U.S. gross domestic product grew at an annual rate of 1.7% in the three months to June, shooting past expectations for a 1% reading 

The report showed personal consumption grew 1.8% in the second quarter, above expectations for 1.6%. Consumer spending typically accounts for nearly 70% of U.S. economic growth.

Separately, payroll processing firm ADP said non-farm private employers created 200,000 jobs in July, above expectations for an increase of 180,000. 

Data also showed that the Chicago purchasing managers' index rose less than expected in July, hitting 52.3 from 51.6 in June. Analysts had expected the index to rise to 54.0 for July.

The news sparked talk the economy is on the mend and may convince the Federal Reserve to begin tapering its monthly USD85 billion in asset purchases later this year.

Stimulus measures tend to weaken the dollar weak to spur recovery, and talk of their dismantling can strengthen the greenback.

The dollar gave back its gains against the euro as investors waited for the Fed to release its statement on policy later.

The euro saw support after Germany reported that the number of unemployed people in the country fell by 7,000 in June, defying expectations for a 4,000 decline. Germany's unemployment rate remained unchanged at 6.8% in June, in line with expectations. 

A separate report showed that German retail sales declined 1.5% in June, missing expectations for a 0.4% rise after increasing 0.7% the previous month. 

In addition, the unemployment rate in the euro zone held steady at 12.1% last month, slightly less than expectations for a rise to 12.2%.

The euro zone's consumer price index came in at 1.6% in July, unchanged from June an in line market expectations.  

The euro, meanwhile, was up against the pound and up against the yen, with EUR/GBP trading up 0.50% at 0.8748 and EUR/JPY trading up 0.39% at 130.53.