The dollar turned lower against the other major currencies on Friday as U.S. inflation data indicated that the Federal Reserve had sufficient scope to continue its quantitative easing program.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.
The dollar was lower against the euro, with EUR/USD rising 0.55% to settle at 1.3076 on Friday, 0.34% higher for the week. The greenback was sharply lower against the yen, with USD/JPY down 0.83% to 95.31 at the close of trade, falling 1.39% for the week.
Sentiment on the euro remained fragile amid ongoing concerns over the economic outlook for the euro zone and political uncertainty in Italy.
The long term weakening trend on the yen looked likely to remain intact as investors waited to see what fresh easing steps incoming Bank of Japan Governor Haruhiko Kuroda would take to combat deflation.
Elsewhere, the dollar ended the day lower against the pound on Friday, with sterling briefly rising above the 1.5150 level after Bank of England Governor Mervyn King said the recent sharp fall in sterling had gone far enough, adding the pound was now ‘properly valued’ and that an economic recovery 'was in sight'.
GBP/USD hit a session high of 1.5176 on Friday, before settling at 1.5111, 0.19% higher for the day and 1.36% higher for the week.
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 minutes from the BoE’s March meeting and the U.K. governments annual budget statement. Elsewhere, Japan is to release official data on the trade balance on Thursday, while Germany’s ZEW economic index will be closely watched.
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
Australia is to release official data on new vehicle sales, a leading indicator of consumer confidence.
The euro zone is to publish official data on the trade balance, the difference in value between imports and exports.
Later in the trading day, Canada is to publish government data on the balance of foreign investment in Canadian securities.
Tuesday, March 19
The Reserve Bank of Australia is to publish the minutes of its most recent policy meeting. The minutes give investors a valuable insight into economic conditions from the bank’s perspective.
The U.K. is to publish official data on consumer price inflation, which accounts for the majority of overall inflation and data on the producer price index and the retail price index.
Elsewhere, the ZEW Institute is to release its closely watched index of German economic sentiment, a leading economic indicator.
Canada is to produce government data on manufacturing sales and wholesale sales, leading indicators of economic strength.
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
Markets in Japan are to remain closed for a national holiday.
In the euro zone, Germany is to release official data on producer price inflation and hold an auction of 10-year government bonds.
Elsewhere in Europe, the U.K. is to release government data on the change in the number of people employed and the unemployment rate, a leading economic indicator.
Meanwhile, the Bank of England is to publish the minutes of its February meeting and the U.K. government is to unveil its annual budget statement.
The ZEW Institute is to publish a report on Swiss economic expectations.
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.
Later Wednesday, New Zealand is to publish official data on fourth quarter economic growth, the broadest indicator of economic activity and the leading measure of the economy's health.
Thursday, March 21
Japan is to publish official data on the trade balance. Elsewhere, China is to publish the preliminary reading of its HSBC manufacturing purchasing managers’ index.
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.K. is to release official data on retail sales, the government measure of consumer spending, which accounts for the majority of overall economic activity. The country is also to release official data on public sector net borrowing and private sector data on industrial order expectations.
Canada is to produce government data on retail sales.
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
Australia is to publish an index of leading economic indicators, designed to predict the future direction of the economy.
In the euro zone, the Ifo Institute is to release a report on German business climate, a leading economic indicator.
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