Investing.com - The euro fell to two-year lows against the dollar on Friday, as a Bank of Japan move to stimulate its economy anew caught many by surprise, which spurred widespread demand for the U.S. currency.
Upbeat U.S. data gave the greenback an edge over the single currency as well.
In U.S. trading, EUR/USD was down 0.67% at 1.2528, up from a session low of 1.2486 and off a high of 1.2617.
The pair was likely to find support at 1.2463, the low from Aug. 28, 2012, and resistance at 1.2772, Wednesday's high.
The dollar shot up against most major currencies after the BOJ said it would raise its monetary base target to an annual increase of ¥80 trillion from ¥60-70 trillion, a preemptive move to steer the economy away from deflationary decline while improving the chances of reaching inflation goals.
Adding to pressure, a Japanese government panel overseeing the Government Pension Investment Fund approved plans on Friday for the fund to raise its holding of foreign stocks to 25% of its portfolio from 12%.
Friday's changes to Japanese monetary policy caught many investors off guard and sent the dollar soaring at the euro's expense.
Strong data out of the U.S. also bolstered the greenback.
The Thomson Reuters/University of Michigan final consumer sentiment index rose to a seven-year high of 86.9 this month from 86.4 in September. Analysts had expected the index to remain unchanged.
In addition, industry data showed that the Chicago purchasing managers' index rose to a three-and-a-half year high of 66.2 in October from 60.5 in September, confounding expectations for a reading of 60.0.
The reports overshadowed earlier data showing that personal spending fell 0.2% last month, disappointing expectations for a 0.1% rise, after an increase of 0.5% in August.
U.S. personal income rose 0.2% in September, less than the expected 0.3% gain, after a 0.3% advance the previous month.
Meanwhile in the euro zone, official data revealed that consumer price inflation rose at an annualized rate of 0.4% this month, in line with expectations and up from 0.3% in September.
The rate has now been below 1% for 13 straight months, well under the European Central Bank's target of near but just under 2%.
Core CPI, which excludes food, energy, alcohol, and tobacco, rose at an annualized rate of 0.7% in October, down from 0.8% from the previous month and shy of market expectations for a 0.8% reading.
A separate report showed that the euro zone's unemployment rate remained unchanged at 11.5% last month, as markets had anticipated.
Data also showed that German retail sales dropped 3.2% last month, compared to expectations for a 1.0% fall. The August figure was revised to a 1.5% increase from a previously estimated 2.5% rise.
Elsewhere, the euro was down against the pound, with EUR/GBP down 0.60% at 0.7835, and up against the yen, with EUR/JPY up 1.97% at 140.50.