Investing.com - The dollar rose to 10-week highs against the euro on Friday as a slowdown in the annual rate of euro zone inflation in January fuelled fears over the threat of deflation in the euro area.
EUR/USD hit 1.3478, the weakest since November 22 and was last down 0.49% to 1.3488. For the week, the pair lost 1.35%.
The annual rate of euro zone inflation slowed to 0.7% in January, Eurostat said, after a 0.8% gain in December. Analysts had expected the inflation rate to tick up to 0.9%.
It was the fourth consecutive month the inflation rate came in at less than 1% and was well below the ECB’s target of 2%. The ECB unexpectedly cut rates to a record low 0.25% when inflation fell to a four-year low of 0.7% in October.
A separate report showed that the rate of unemployment in the euro zone was unchanged at 12% in December for the third successive month.
The common currency fell to two-month lows against the yen, with EUR/JPY dropping 1.07% to 137.75, extending the months losses to 1.89%.
Demand for the dollar was also underpinned as the selloff in emerging markets prompted a broad based flight to safety on Friday, with investors fleeing equities, bonds and currencies perceived as risky.
Emerging markets have been hard hit by a combination of concerns over the impact of cuts to the Federal Reserve’s stimulus program and fears over a possible slowdown in China. The Turkish lira and the South African rand tumbled after surprise rate hikes did little to shore up the currencies.
On Wednesday the Fed said it would scale back its monthly asset purchase program by another $10 billion to $65 billion, citing improvements in the labor market.
Data released on Friday showed that U.S. consumer spending rose 0.4% in December, above expectations for an increase of 0.2%.
A separate report showed that the University of Michigan’s consumer sentiment index ticked down to 81.2 in January from 82.5 in December, but was better than the preliminary reading of 80.4 and forecasts for a reading of 81.0.
The reports came one day after data showed that the U.S. economy grew 3.2% in the fourth quarter, in line with expectations.
The data fuelled hopes that the recovery in the world’s largest economy could withstand reductions to the Fed’s asset purchase program and turmoil in emerging markets.
In the week ahead, investors will be keenly anticipating Friday’s U.S. nonfarm payrolls report for January after December’s report showed that the economy added far fewer jobs than expected.
Thursday’s rate decision by the ECB will also be in focus.
Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.
Monday, February 3
In the euro zone, Spain and Italy are to publish data on manufacturing activity.
In the U.S., the Institute of Supply Management is to produce data on manufacturing activity, a leading economic indicator.
Tuesday, February 4
In the euro zone, Spain is to release data on the change in the number of people unemployed.
The U.S. is to produce data on factory orders, a leading indicator of production.
Wednesday, February 5
The euro zone is to release data on retail sales, the government measure of consumer spending, which accounts for the majority of overall economic activity. Spain and Italy are to publish data on service sector activity.
The U.S. is to release the ADP report on private sector job creation, which leads the government’s nonfarm payrolls report by two days. Meanwhile, the ISM is to publish a report service sector activity.
Thursday, February 6
Germany is to publish data on factory orders.
The ECB is to announce its benchmark interest rate. The announcement is to be followed by a press conference with President Mario Draghi.
The U.S. is to publish the weekly report on initial jobless claims as well as data on the trade balance.
Friday, February 7
Germany is to publish reports on industrial production and the trade balance.
The U.S. is to round up the week with the closely watched government data on nonfarm payrolls and the unemployment rate.