EUR/USD hit a session high of 1.3107 on Friday, the pair’s highest since March 8, before settling at 1.3076, 0.55% higher for the day and up 0.34% for the week.
The pair is likely to find support at 1.2998, Friday’s low and resistance at 1.3133, the high of March 8.
The Labor Department reported that U.S. consumer price inflation rose 0.7% in February, bringing the annualized rate of consumer inflation to 2.0%.
Core consumer prices, which exclude volatile food and energy costs, also rose 2% year-on-year.
In December, the U.S. central bank said an “exceptionally low” target interest rate is appropriate as long as inflation isn’t forecast to rise to more than 2.5%.
Sentiment on the dollar was also hit after data showed that the University of Michigan’s consumer sentiment index dropped to 71.8 in March, the lowest level since December 2011, from a final reading of 77.6 in February.
The disappointing data sparked profit taking ahead of an upcoming Federal Reserve policy meeting after a recent string of strong U.S. economic data reinforced optimism over the country’s economic recovery and saw the dollar strengthen across the board.
A separate report showed that U.S. industrial production rose 0.7% in February, more than expectations for a 0.4% gain, underlining the view that the U.S. recovery is gaining traction.
Sentiment on the euro remained fragile amid ongoing concerns over the economic outlook for the euro zone and political uncertainty in Italy.
On Friday, the European Union and International Monetary Fund reached an agreement on a EUR10 billion bailout for Cyprus. The agreement has provoked public anger because of plans to impose a one-time tax on bank deposits.
In the week ahead investors will be focusing on Wednesday’s Federal Reserve policy statement, amid speculation over an earlier-than-expected end to the bank’s asset purchase program. Fed Chairman Ben Bernanke is to give a press conference after the release of the policy statement.
Investors will also be awaiting data on Germany’s ZEW economic index and data on manufacturing and service sector activity in the region.
Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.
Monday, March 18
The euro zone is to publish official data on the trade balance, the difference in value between imports and exports.
Tuesday, March 19
The ZEW Institute is to release its closely watched index of German economic sentiment, a leading economic indicator.
Later Tuesday, the U.S. is to release official data on building permits, a leading indicator of future construction activity, and data on housing starts.
Wednesday, March 20
In the euro zone, Germany is to release official data on producer price inflation and hold an auction of 10-year government bonds.
In the U.S., the Federal Reserve is to announce the federal funds rate and release its rate statement and quarterly economic projections. The announcement is to be followed by a press conference with Fed Chairman Ben Bernanke to discuss monetary policy and the economic outlook.
Thursday, March 21
The euro zone is to produce preliminary data on manufacturing and service sector activity, while Germany and France are also to release individual reports. In addition, France is to hold an auction of 10-year government bonds.
The U.S. is to release the weekly government report on initial jobless claims, as well as industry data on existing home sales and official data on manufacturing activity in Philadelphia.
Friday, March 22
In the euro zone, the Ifo Institute is to release a report on German business climate, a leading economic indicator.
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