The U.S. dollar declined against its major counterparts in the European session on Friday, as U.S. inflation turned flat in June and retail sales unexpectedly decreased for the second consecutive month, dampening expectations for faster rate hike by the Federal Reserve.

Data from the Commerce Department showed that retail sales fell by 0.2 percent in June after edging down by a revised 0.1 percent in May.

The continued drop in sales surprised economists, who had expected sales to inch up by 0.1 percent compared to the 0.3 percent decrease originally reported for the previous month.

Excluding auto sales, retail sales still dipped by 0.2 percent in June following the 0.3 decline seen in May. Ex-auto sales were expected to rise by 0.2 percent.

Data from the Labor Department showed that consumer price index was flat in June after edging down by 0.1 percent in May. Economists had expected consumer prices to inch up by 0.1 percent.

Excluding food and energy prices, core consumer prices crept up by 0.1 percent for the third consecutive month. Core prices had been expected to rise by 0.2 percent.

The University of Michigan is due to release its preliminary report on consumer sentiment in the month of July. The consumer sentiment index is expected to edge down to 95.0 in July falling to 95.1 in June.

Additionally, the Commerce Department is scheduled to release its report on business inventories in the month of May. Inventories are expected to rise by 0.2 percent.

The data came on the heels of dovish remarks by the Fed Chair Janet Yellen on Thursday, when she curbed hopes for faster monetary tightening.

In her second day of Congressional testimony, Yellen backed support for "gradual" increase in interest rates, depending upon the path of inflation.

The Fed is projecting one more interest rate hike for this year, which economists expecting it to come in December.

Dallas Fed President Robert Kaplan also adopted a cautious stance on recent slowdown in U.S inflation and called for a gradual removal of policy accommodation in future.

"I would like to see some greater evidence that we are making progress toward meeting our 2 percent inflation objective in the medium term," he said in an essay published on Thursday. "Future removals of accommodation should be done in a gradual and patient manner."

The greenback showed mixed performance in the Asian session. While the greenback held steady against the euro and the franc, it fell against the pound. Against the yen, the greenback rose.

The greenback reversed from an early more than a 2-week high of 0.9701 against the Swiss franc, edging down to 0.9635. The greenback is likely to locate support around the 0.94 region.

After having advanced to a 2-day high of 113.58 against the Japanese yen at 9:00 pm ET, the greenback hit an 11-day low of 112.27. The greenback is poised to find 110.00 as the next support level.

Final data from the Ministry of Economy, Trade and Industry showed that Japan's industrial production declined more than estimated in May.

Industrial output fell 3.6 percent on a monthly basis instead of 3.3 percent decrease estimated previously. Year-on-year, production advanced 6.5 percent.

The greenback slipped to a 2-day low of 1.1468 against the euro, from a high of 1.1391 hit at 8:15 pm ET. If the greenback extends fall, 1.16 is possibly seen as its next support level.

Data from Eurostat showed that the Eurozone trade surplus increased in May as growth in exports outpaced the rise in imports.

The trade surplus increased to a seasonally adjusted EUR 19.7 billion in May from EUR 18.6 billion in April. Exports grew 2.1 percent from April and imports by 1.6 percent.

Extending early slide, the greenback dropped to an 11-day low of 1.3012 against the pound. The pair finished Thursday's trading at 1.2938. Continuation of the greenback's downtrend may see it challenging support around the 1.32 area.

The greenback hit a 2-day low of 1.2692 versus the loonie and a 15-month low of 0.7826 versus the aussie, off its early highs of 1.2747 and 0.7726, respectively. Further downtrend may take the greenback to support levels of around 1.25 against the loonie and 0.80 against the aussie.

The greenback reached as low as 0.7366 against the kiwi, following a high of 0.7299 hit at 6:45 am ET. The greenback is seen challenging support around the 0.75 area.

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