The euro drifted lower against its major counterparts in the European session on Wednesday, after a data showed that the euro area business activity contracted further in January, as tighter virus restrictions weighed on the service sector.

Final survey results from IHS Markit showed that the final composite output index dropped to 47.8 in January from 49.1 in the previous month but was above the flash score of 47.5. The service sector was once again the main drag on the economy, with activity contracting for a fifth successive month.

At 45.4, the services Purchasing Managers' Index was down from December's 46.4 but above the flash 45.0.

In Germany, the composite output index slipped to a seven-month low of 50.8, as initially estimated, from 52.0 in December.

The service sector contracted for the fourth straight month in January. The PMI fell to 46.7 from 47.0 in December. The preliminary reading was 46.8.

The euro dropped to more than a 2-month low of 1.2010 against the greenback and a 6-day low of 126.23 against the yen, compared to Tuesday's closing values of 1.2043 and 126.40, respectively. The euro is likely to target support around 1.18 against the greenback and 123.5 against the yen.

Reversing from its prior highs of 1.0819 against the franc and 0.8823 against the pound, the single currency pulled back to 1.0803 and 0.8802, respectively. The euro is seen finding support around 1.065 against the franc and 0.86 against the pound.

The single currency weakened to near a 2-week low of 1.5364 against the lonnie, compared to 1.5393 hit late New York Tuesday. On the downside, 1.52 is likely seen as its next support level.

The euro edged down to 1.5776 against the aussie from yesterday's close of 1.5831. If the euro extends decline, 1.54 is possibly seen as its next support level.

The 19-nation currency held steady against the kiwi, after having dropped to 1.6673 in the Asian session, which was its lowest level since January 2020. At yesterday's close, the pair was worth 1.6742.

Looking ahead, U.S. ADP private payrolls data for January is scheduled for release at 8:15 am ET.

The U.S. ISM non-manufacturing PMI for January will be released in the New York session.