Forex - EUR/USD trims losses, Portugal uncertainty weighs

The euro pulled back from five-week lows against the dollar on Wednesday but the single currency remained under pressure as an escalating political crisis in Portugal weighed.

EUR/USD pulled away from 1.2924, the pair’s lowest since May 29, to hit 1.2958 during European afternoon trade, still down 0.15% for the day.

The pair was likely to find support at 1.2903, the low of May 24 and resistance at 1.3000.

Market sentiment was hit by concerns over political instability in Portugal, following the resignation of country’s foreign minister on Tuesday and the finance minister on Monday in protest over government austerity policies.

The political crisis raised doubts over the future of the country's coalition government and its ability to honor bailout commitments.

The single currency found some support after official data showed that euro zone retail sales rose 1% in May, outstripping expectations for a 0.2% gain.

Meanwhile, revised data showed that the euro zone services purchasing managers’ index ticked up to 48.3 in June from a final reading of 47.2 in May.

Investors also remained wary ahead of Thursday’s European Central Bank policy meeting. ECB President Mario Draghi was expected to reiterate that an exit from loose monetary policy remains distant.

Demand for the dollar continued to be underpinned after economic data releases earlier in the week underlined the view that the stronger U.S. economy will see the Federal Reserve start to taper asset purchases later this year.

Investors were looking ahead to Friday’s U.S. nonfarm payrolls data, for further clues on when the Fed may decide to unwind its USD85 billion-a-month stimulus program.

The euro was sharply lower against the yen and the pound, withEUR/JPY tumbling 1.32% to 128.85 and EUR/GBP falling 0.93% to 0.8483.

The U.S. was to release the ADP report on nonfarm payrolls later Wednesday, as well as the weekly government report on initial jobless claims and data on the trade balance. In addition, the ISM was to produce a report on U.S. service sector activity.