Forex - EUR/USD edges higher, gains capped by Italy, U.S. concerns

The euro edged higher against the U.S. dollar on Friday, but gains were limited as concerns over the political deadlock in Italy continued to weigh on demand for the single currency and after U.S. budget negotiations failed. 

EUR/USD hit 1.3084 during late Asian trade, the session high; the pair subsequently consolidated at 1.3072, edging up 0.09%. 

The pair was likely to find support at 1.2018, the low of February 26 and resistance at 1.3158, Thursday's high. 

Investors remained cautious amid fears Italy would not be able to continue to implement economic reforms following inconclusive election results. 

Markets were also jittery after U.S. after Republicans and Democrats failed to agree on an alternative deficit-reduction plan, putting the country on the path towards USD85 billion in automatic budget cuts. 

U.S. President Barack Obama invited congressional leaders to the White House for last minute negotiations before the 11.59pm deadline on Friday. 

Earlier in the day, official data showed that German retail sales rose 3.1% in January, beating expectations for a 1% increase, after a 2.1% decline the previous month. 

The euro was also steady against the pound with EUR/GBP inching up 0.03%, to hit 0.8613. 

Also Friday, data showed that China's manufacturing purchasing managers' index declined more-than-expected, ticking down to 50.1 in February from a reading of 50.4 the previous month, albeit remaining in expansion territory for the fourth consecutive month. 

Analysts had expected the index to slip to 50.2. 

Later in the day, the euro zone was to release official data on consumer price inflation, while Spain and Italy were to produce data on manufacturing activity. 

The U.S. was to release a report from the Institute of Supply Management on manufacturing activity, official data on personal spending and revised data on consumer sentiment from the University of Michigan.