Forex - Euro lower vs. dollar after euro zone factory data

The euro slipped lower against the dollar on Wednesday amid heightened expectations that the Federal Reserve will start tapering asset purchases as soon as the end of this year, while mixed euro zone factory data also weighed.

EUR/USD slipped 0.15% to 1.3415 during European afternoon trade, still holding above the seven-week low of 1.3294 struck last Thursday.

The pair was likely to find support at 1.3343, Monday’s low and resistance at 1.3455, Tuesday’s high.

Last week’s stronger than forecast U.S. nonfarm payrolls report prompted investors to bring forward expectations for a reduction in the Fed’s USD85 billion-a-month asset purchase program.

Investors were turning their attention to Thursday’s Senate hearing to confirm Janet Yellen as the first chairwoman of the Federal Reserve, for indications on the future course of U.S. monetary policy.

The euro slid after data released on Wednesday showed that industrial production in the euro area fell 0.5% in September from a month earlier, but was 1.1% higher on a year-over-year basis. Economists had forecast a monthly decline of 0.3% and an annual increase of 0.2%.

Meanwhile, official data showing that the annual rate of inflation in Spain fell by 0.1% in October added to fears over growing deflationary pressures in the euro area. The downward trend in inflation prompted the European Central Bank to cut rates to a record low 0.25% last week.

The euro was lower against the yen, with EUR/JPY down 0.37% to 133.39.

Elsewhere, the shared currency fell to session lows against the broadly stronger pound, with EUR/GBP down 0.56% to 0.8400.

Sterling strengthened across the board after the Bank of England’s quarterly inflation report said the unemployment rate will fall faster than it expected three months ago. BoE Governor Mark Carney said there is a "two in five chance" that it could be 7% at the end of 2014.

The bank reiterated that the unemployment rate falling below 7% would not automatically trigger an increase in interest rates.

The BoE also revised up growth forecasts, saying it now expects economic growth of 1.6% this year, up from 1.4% in August and growth of 2.8% in 2014, up from 2.5%. The bank still expects growth of 2.3% in 2015.

The pound received an additional boost after official data on Wednesday showed that the number of people claiming unemployment benefits in the U.K. fell more than expected in October.

The U.K. unemployment rate ticked down to 7.6% in the three months to September. Economists had expected the rate of unemployment to remain unchanged at 7.7%.