The Canadian dollar strengthened against other major currencies in the European session on Friday amid risk appetite, as signs of easing inflation in the U.S. and the euro zone raised optimism over possible interest rate cuts earlier next year.

Speculations rose that the U.S. Federal Reserve will start reducing interest rates from the first quarter of next year.

Softer than expected eurozone inflation data also raised hopes the European Central Bank will begin cutting rates from early next year.

Investors await Federal Reserve Chair Jerome Powell's remarks later in the day for additional clues on the rate outlook.

Encouraging U.K. house price data also boosted sentiment.

U.K. house prices rose by 0.2 percent in November, marking the third successive monthly increase, the latest Nationwide house price index revealed.

A survey showed Eurozone factory downturn remained strong in November, but reductions in output, new orders and inventories eased.

The HCOB Eurozone Manufacturing PMI, compiled by S&P Global, improved to 44.2 from 43.1 in October.

In the European trading, the Canadian dollar rose to more than a 2-month high of 1.3518 against the U.S. dollar and a 4-day high of 109.56 against the yen, from early lows of 1.3558 and 109.03, respectively. If the loonie extends its uptrend, it is likely to find resistance around 1.33 against the greenback and 111.00 against the yen.

Against the euro, the loonie climbed to a 3-week high of 1.4728 from an early low of 1.4780. The loonie may test resistance around the 1.44 region.

The loonie edged up to 0.8941 against the Australian dollar, from an early low of 0.8974. On the upside, 0.88 is seen as the next resistance level for the loonie.

Looking ahead, Canada jobs data for November and manufacturing PMI data for November, U.S. PMI data for November, construction spending for November and U.S. Baker Hughes rig count data are due to be released in the New York session.

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