EUR/USD inched up on Wednesday on a volatile day of trading, after Federal Reserve chair Janet Yellen provided few indications on the timing of the Fed's next interest rate move in guarded testimony on Capitol Hill.

The currency pair traded in a broad range between 1.1161 and 1.1315 before settling at 1.1291, up 0.0003 or 0.02% on the session. The euro staged a late rally against the dollar to extend a three-day winning streak. EUR/USD has now closed higher in 11 of the last 13 sessions and is up by nearly 4% since the end of last month. In Tuesday's session, the euro posted sharp gains to close at its highest level versus the greenback since late-October.

EUR/USD likely gained support at 1.0538, the low from December 3 and was met with resistance at 1.1496, the high from Oct. 15.

While Yellen noted on Wednesday that widespread market volatility and a weak dollar continued to pose growth risks to the U.S. economy, she appeared confident that inflation will move back toward the Fed's targeted goal of 2%, while reiterating that the labor market is close to full employment. Yellen's semi-annual testimony before the House Financial Services Committee could be interpreted as neither dovish, nor hawkish, providing further ambiguity on whether the Fed will raise short-term interest rates before the end of the summer.

Yellen's testimony marked her first appearance on Capitol Hill since the Federal Open Market Committee (FOMC) ended a seven-year zero interest policy late last year. At a historic meeting in mid-December, the FOMC raised short-term interest rates for the first time in nearly a decade by lifting the target range on its benchmark Federal Funds Rate by 25 basis points to 0.25 and 0.50%. The FOMC followed by leaving the target rate unchanged at a meeting in late-January.

In her testimony, Yellen emphasized that the Fed's monetary policy cycle is not on a preset course, as further interest rate decisions will continue to depend on incoming economic data over the next several months. Yellen also noted that the neutral nominal federal funds rate, or the rate which is neither expansionary or contractionary if the economy is operating at its full potential, is "currently low by historical standards." Yellen cited a range of economic headwinds for restraining the rate including: the appreciation of the dollar, limited credit availability for borrowers and weak growth abroad.

Moving forward, Yellen stressed that diminishing slack in the labor market and a bottoming of oil price declines could help move inflation back toward the Fed's long-term targeted goal of 2%. Core PCE Inflation, the Fed's preferred gauge of inflation, currently hovers at 1.4%, considerably below the FOMC's objective.

"In particular, stronger growth or a more rapid increase in inflation than the Committee currently anticipates would suggest that the neutral federal funds rate was rising more quickly than expected, making it appropriate to raise the federal funds rate more quickly as well," Yellen testified.

Markets interpreted Yellen's comments as fairly dovish, as the CME Group's (O:CME) Fed Watch lowered the probability of a March interest rate hike to 0% on Wednesday, down from 4.2% a day earlier. The CME Group also lowered the odds of a December rate hike to 17.3%, from Tuesday's level of 20.8%. Any rate hikes this year are viewed as bullish for the dollar, as foreign investors pile into the greenback in an effort to capitalize on higher yields.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, rose by more than 0.35% to an intraday high of 96.77, before falling slightly back at the close. The index tumbled by more than 1% on Tuesday to an intraday low of 95.68, its lowest level since late-October. Since the FOMC released its latest monetary policy statement on Jan. 27, the dollar has fallen by more than 2.5%.

Yields on the U.S. 10-Year lost six basis points to 1.67%, while yields on the Germany 10-Year gained one basis point to 0.24%. Government bond yields on U.S. 10-year Treasuries have fallen 45 basis points over the last month.

Source:-Forexpros