Soft U.S. Inflation Drags Down Dollar

The U.S. dollar declined against its key counterparts in the European session on Friday, as U.S. consumer prices grew less than forecast in July, raising uncertainty over a Fed rate hike in December.

Data from the Labor Department showed that consumer price index inched up by 0.1 percent in July after coming in unchanged in June. Economists had expected prices to rise by 0.2 percent.

Excluding food and energy prices, core consumer prices still crept up by 0.1 percent in July, matching the increases seen in the three previous months. Core prices had also been expected to climb by 0.2 percent.

Markets also await speeches by Fed officials Robert Kaplan and Neel Kashkari for more insights about the monetary policy outlook.

The greenback declined against its most major counterparts in the Asian session as U.S. President Donald Trump's rhetoric on North Korea made investors cautious.

Political uncertainty escalated after Trump further ratcheted up the rhetoric over North Korea, suggesting that his "fire and fury" comments may not have been tough enough.

The greenback declined to 1.3009 against the pound, after having advanced to more than a 3-week high of 1.2951 at 6:15 am ET. If the greenback extends decline, 1.33 is possibly seen as its next support level.

The greenback dropped to a 3-day low of 1.1819 against the euro, from a high of 1.1749 hit at 5:30 am ET. Continuation of the greenback's downtrend may see it challenging support around the 1.22 mark.

Final data from Destatis showed that Germany's consumer price inflation accelerated to a three-month high in July.

Inflation, based on consumer prices, grew 1.7 percent annually, slightly faster than the 1.6 percent increase registered in June. This was the fastest since April and came in line with the flash estimate published on July 28.

Extending early slide, the greenback fell to more than a 2-week low of 0.9582 against the Swiss franc. The next possible support for the greenback-franc pair is seen around the 0.94 region.

The greenback continued to be lower against the yen with the pair touching near a 4-month low of 108.72. On the downside, 107.00 is possibly seen as the next support level for the greenback.

The greenback eased to 0.7317 against the kiwi and 0.7909 against the aussie, from its early session's high of 0.7252 and more than a 3-week high of 0.7839, respectively. The greenback is seen finding support around 0.74 against the kiwi and 0.80 against the aussie.

The greenback hit a 3-day low of 1.2653 versus the loonie, off its early high of 1.2753. The greenback is likely to challenge support around the 1.25 area.