Investing.com -- EUR/USD fell sharply on Friday continuing its push back to parity, amid further indications of policy divergence between the Federal Reserve and the European Central Bank.
The currency pair traded in a broad range between 1.0641 and 1.0738, before settling at 1.0648, down 0.0086 or 0.81% on the session. With the sharp losses EUR/USD dropped to near-seven month lows from earlier in the week. For the week, EUR/USD lost roughly 1.2% after closing in the red on three of five sessions. More broadly, the euro has lost nearly 6.5% against the dollar since mid-October when it nearly hit 1.15.
More than a decade has passed since the euro last fell to parity with the dollar.
EUR/USD likely gained support at 1.0615, the low from November 18 and was met with resistance at 1.1489 the high from Oct. 15.
In a closely watched speech at the Frankfurt European Banking Congress on Friday, ECB president Mario Draghi sent perhaps his strongest indications yet that the bank will approve further easing measures next month, likely by moving its deposit rate deeper into negative territory. At negative 0.20%, the rate is already at a record low. The minutes from the ECB's November meeting, released this week, showed that inflation in the euro zone remains well below the bank's target, in spite of numerous easing measures implemented by the bank in recent months to inject liquidity into the system.
In March, the ECB launched a comprehensive €60 billion a month asset purchasing program (APP) intended to run through September, 2016. Draghi has also hinted that the ECB could expand the scope of the quantitative easing program when its Governing Council meets again on Dec. 3.
"The level of the deposit facility rate can also empower the transmission of APP, not least by increasing the velocity of circulation of bank reserves," Draghi said in the speech. "If we decide that the current trajectory of our policy is not sufficient to achieve our objective, we will do what we must to raise inflation as quickly as possible. That is what our price stability mandate requires of us."
Elsewhere, currency traders digested further signals that the Federal Open Market Committee could raise short-term interest rates at its monetary policy meeting next month. On Friday morning, Federal Reserve Bank of St. Louis president James Bullard argued that he expects inflation to move back to the Fed's targeted goal of 2%, if the cost of oil stabilizes and other prices continue to increase at its current rate over the next year. Following last month's stellar U.S. jobs report, a host of FOMC members including Fed chair Janet Yellen have hinted that conditions in the economy have improved enough to justify a rate hike.
A rate hike is viewed as bullish for the dollar as foreign investors pile into the greenback in order to capitalize on higher yields.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, surged more than 0.50% on Friday to close at 99.65, near session highs. On Wednesday, the index reached as high as 99.97 on the final session of a four-day winning streak, jumping to its strongest level since mid-March.