Dollar inches closer to euro parity

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The euro extended its losses against the greenback on Friday as it traded under $1.05.

The euro zone currency dropped nearly 1.50 percent to $1.0462, a fresh 12-year low. It last traded at $1.04805 against the greenback.

Dollar-buying momentum lifted the greenback against its major rivals on Friday, overcoming disappointing U.S. inflation and consumer sentiment data that would normally weaken it. The dollar index rose to a fresh 12-year high of 100.39. Positioning ahead of the Federal Reserve's monetary policy meeting next week was also seen as a potential reason for the seemingly incongruous move up by the dollar, analysts said.

"This was a fairly sudden move up in the dollar ... The data are conflicting with PPI soft but the U.Mich inflation data is relatively strong. But this isn't so much about the data, rather the Fed and what to expect from next week's meetings," said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto.

U.S. producer prices fell 0.6 percent last month, the first drop since the series was revamped in 2009, pointing to tame inflation that could argue against an anticipated June interest rate increase by the Fed.

In addition the University of Michigan's consumer sentiment index fell in March, although inflation expectations rose for a second straight month to its highest since September.

"It was a bit of a whipsaw, to be honest," Sutton said, noting how the euro trimmed its losses after the PPI report only to see it lose ground after the sentiment report.

The European Central Bank's quantitative easing program, meant to stimulate borrowing and investment, stands in contrast to the expectation the Fed starts raising interest rates later this year, enhancing the dollar's yield advantage.

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"Dollar-buying momentum is overcoming rising European yields. It remains unclear what's driving this higher because the data and the curves would argue more (for) its weakness," Galy said, referring to a pause in European bond buying that has driven yields to record lows and in some cases negative levels.

U.S. investment bank Goldman Sachs now predicts the euro will plunge through parity against the dollar within a year to hit a record low by the end of 2017.

The dollar index last traded at 100.25, up 0.83 percent.

Sterling tumbled more than 1 percent to a fresh near five-year low against the greenback to trade just above the key support of $1.4700. It last traded at $1.4743.

The dollar was up at 121.38 yen.