Investing.com - The euro was sharply higher against the dollar on Friday, notching up its largest weekly gain against the greenback in almost three years as doubts over the path of U.S. monetary policy pressured the dollar lower.
EUR/USD was up 1.52% to 1.0820 late Friday. For the week, the common currency gained 3.2%, the largest increase since October 2011.
The sharp drop in the dollar came about amid uncertainty over the path of U.S. monetary policy after the Federal Reserve downgraded its forecasts for growth and inflation and lowered its interest rate projections on Wednesday.
The Fed statement dampened expectations for a mid-year rate hike, prompting investors to exit positions which would benefit from a strong dollar, sparking volatility in the foreign exchange market.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, ended the week down 2.53%, posting the biggest weekly decline since October 2011.
Despite the past week’s reversal the dollar looks likely to continue to strengthen, with the Fed still expected to raise interest rates ahead of other central banks.
The euro has fallen around 10% against the dollar so far this year and the European Central Bank’s trillion-euro quantitative easing program, which launched earlier this month, is set to continue to act as a drag on the single currency.
In the week ahead, investors will be focusing on Tuesday’s U.S. inflation report after Fed Chair Janet Yellen warned last week that the stronger dollar was pushing down inflation.
Survey data on euro zone private sector activity, due for release on Tuesday, will also 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 23
The U.S. is to release a report on existing home sales.
Tuesday, March 24
The euro zone is to produce survey data on private sector activity, while Germany and France will also publish what will be closely watched individual reports.
The U.S. is to release data on consumer price inflation and new home sales.
Wednesday, March 25
In the euro zone, the Ifo Institute is to report on German business climate.
The U.S. is to publish data on durable goods orders.
Thursday, March 26
Research group Gfk is to publish a report on German consumer climate.
The euro area is to release data on private lending and M3 money supply.
Friday, March 27
The U.S. is to round up the week with final data on fourth quarter economic growth and the revised reading of the University of Michigan consumer sentiment index.