Forex - EUR/USD rises after U.S. retail sales but gains capped

The euro rose against the U.S. dollar on Friday, after the release of positive U.S. retail sales data but gains were expected to remain in check amid speculation the U.S. will raise interest rates sooner than expected.

The pair was likely to find support at 1.2858, the low of September 9 and a 14-month low and resistance at 1.2986, the high of September 5.EUR/USD hit 1.2955 during European afternoon trade, the session high; the pair subsequently consolidated at 1.2952, rising 0.23%.

Official data showed that U.S. retail sales rose 0.6% last month, in line with expectations. Retail sales for July were revised to a 0.3% gain from a previously estimated flat reading.

Core retail sales, which excludes automobiles, increased by 0.3% in August, in line with market expectations and following a 0.3% gain in July, whose figure was revised from a previously estimated 0.1% rise.

The data came amid expectations for an early hike in U.S. interest rates after a study by the San Francisco Federal Reserve published on Monday indicated that central bank officials see rates rising sooner than markets expect.

The Fed was expected to cut its asset purchase program by another $10 billion at its upcoming policy meeting next week which would keep it on track for winding up the program in October, and to start raising interest rates sometime in mid-2015.

Earlier Friday, official data showed that euro zone industrial production rose 1.0% in July, exceeding expectations for a 0.5% gain, after a 0.3% fall in June.

Sentiment on the single currency remained vulnerable after the European Central Bank unexpectedly cut rates to record lows across the euro zone last week and unveiled new easing measures in a bid to shore up the faltering recovery and boost inflation.

The euro was also higher against the pound, with EUR/GBP adding 0.11% to 0.7966.

Later in the day, the U.S. was to release closely watched preliminary data on consumer sentiment.