The pan-European Stoxx 600 provisionally closed down by 0.4%, with most sectors trading in negative territory.
Europe's banking index, however, rose by more than 1.7%. The reaction comes after comments from Fed Chairman Jerome Powell. He unveiled a major policy change, which suggests that interest rates are likely to remain low for some time.
Powell said the Fed will allow inflation and employment to run above target levels to support the economy. In practice, this means that the Fed will allow inflation to run above 2% before it changes its rates.
Meanwhile, Japanese Prime Minister Shinzo Abe announced his resignation for health reasons. "I needed to fight against the disease and be treated and I was not really in a perfect state in terms of the health condition," Abe said Friday, according to a translation. "I would like to send my apologies to the people of Japan."
Japan's Nikkei 225 index closed 1.4% lower on Friday.
On Wall Street, stocks rose to stay on track for another strong week as the Dow Jones Industrial Average tried to erase its losses of 2020.
Back in Europe, economic data was also in focus Friday. France's second-quarter GDP (gross domestic product) was confirmed at -13.8%. Meanwhile, France's statistical office, Insee, reported that household consumption rose 0.5% in July from the previous month.
In Spain, retail sales dropped 3.9% year-on-year in the month of July, a slight improvement from the previous reading.
Looking at individual stocks, British Gas owner Centrica rose almost 5% to the top of the pan-European benchmark. It comes despite news that British Gas paid a total of £1.73 million ($2.3 million) for mishandling a change in a top-up provider for prepayment meters, according to Reuters. The energy regulator Ofgem said it had decided not to take formal enforcement action.
Rolls-Royce, the engine maker, said it would sell assets in an attempt to raise £2 billion. Shares fell by about 3%.
Meanwhile, WPP tumbled another 3% despite announcing plans to resume its dividend after beating dire second-quarter earnings expectations.
- CNBC's Christine Wang contributed to this report.