The dollar fell to session lows versus the euro and traded flat against the yen as investors took profits ahead of the weekend after recent strong gains in the U.S. currency, traders said.
The euro was slightly higher against the dollar, after climbing to a session high of more than $1.55. Against the yen, the dollar was little changed.
A government report on Friday showed U.S. personal spending rose in April in line with forecasts and a key measure of inflation moderated.
In contrast, Euro zone inflation rebounded to its historic peak of 3.6 percent in May, data showed on Friday, while German retail sales unexpectedly fell for the second month in a row in April.
The dollar garnered broad support this week from a further retreat in oil prices from last week's record $135.09 per barrel and a jump in U.S. Treasury yields.
"The personal income and spending report fits in nicely with recent data reflecting a bottom has been put in for the dollar," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon in New York. "The focus right now is also on oil prices."
The euro zone common currency was headed for a second month of declines versus the greenback, according to Reuters data.
European Central Bank President Jean-Claude Trichet in an interview published Friday said that the central bank will do everything it can to preserve price stability and reinforce expectations of low inflation.
"The euro is no different to many other currencies -- stuck between a rock and a hard place with slowing growth and rising inflation," said JP Morgan G10 strategist Kamal Sharma in London.
"Inflation is likely to remain above the ECB's target in the near term. But against the backdrop of slowing growth ... the ECB is unlikely to pull the trigger on rate hikes through the rest of the year."
The dollar index, which tracks the value of the greenback against a basket of six currencies, rose.
Moves in oil prices are seen as key for the dollar as a recent surge has fanned fears about the ability of U.S. consumers and businesses to weather the credit- and housing market-led downturn.