The U.S. dollar weakened against its major rivals in the European session on Friday, as the nation's retail sales fell unexpectedly in August, primarily driven by a steep drop in auto sales.

Data from the Commerce Department showed that retail sales dipped by 0.2 percent in August after rising by a downwardly revised 0.3 percent in July.

Economists had expected retail sales to inch up by 0.1 percent compared to the 0.6 percent increase originally reported for the previous month.

Excluding the slump in auto sales, retail sales rose by 0.2 percent in August after climbing by 0.4 percent in July. Ex-auto sales had been expected to increase by 0.5 percent.

The Fed meets next week, with economists widely expecting the interest rate to be kept unchanged.

The Fed fund futures are pricing in the possibility of a December rate hike at 51 percent, taking the federal funds rate to 1.25 percent - 1.5 percent.

The currency has been trading lower earlier in the session, as concerns over North Korea renewed after the nation fired a missile over Japan. This was the second launch towards Japan in less than a month and came a day after N.Korea threatened to sink Japan with a nuclear weapon.

Secretary of State Rex Tillerson said continued provocations would only deepen North Korea's diplomatic and economic isolation.

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

The greenback slipped to a 2-day low of 1.1987 against the euro, after having advanced to 1.1901 at 9:15 pm ET. Continuation of the greenback's downtrend may see it challenging support around the 1.21 region.

Data from Eurostat showed that the euro area trade surplus declined more-than-expected in July, as exports fell and imports rose.

The seasonally adjusted trade surplus shrank to EUR 18.6 billion in July from EUR 21.7 billion in June. Economists had expected the surplus to fall to EUR 20.3 billion.

The greenback that closed Thursday's trading at 0.9628 against the franc weakened to a 3-day low of 0.9570. If the greenback-franc pair extends slide, 0.94 is possibly seen as its next support level.

The greenback eased to 110.67 against the yen, from an early nearly 2-month high of 111.33.This may be compared to a 3-day low of 109.55 set at 6:00 pm ET. On the downside, the greenback may locate support around the 108.00 mark.

The greenback remained lower against the pound, after setting over an yearly low of 1.3616. The next possible support for the greenback is seen around the 1.42 area.

The greenback dropped to a 3-day low of 1.2120 against the loonie, 2-day lows of 0.8035 against the aussie and 0.7299 against the kiwi, reversing from its early highs of 1.2188, 0.7987 and 0.7212, respectively. The greenback may possibly locate support around 1.19 against the loonie, 0.82 against the aussie and 0.74 against the kiwi.

The University of Michigan's preliminary consumer sentiment index for September and business inventories for July are due shortly.

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