Some traders said investors were buying dollars as a safe haven bet as geopolitical fears mount amid the widening conflict in the Middle East. Israel on Friday continued its wide-ranging military offensive against Lebanon as Hezbollah guerrillas fired rockets into northern Israel.

The euro declined to 1.2651 dollars at 2100 GMT from 1.2691 dollars late in New York on Thursday.

The US currency meanwhile climbed to 116.15 yen from 115.37 yen late on Thursday, and also notched up gains against the British pound and Swiss franc.

"The US dollar rallied over the course of the week," said Mark Chandler, a currency analyst at the Scotiabank Group.

"The notion that geopolitical tensions were boosting safe-haven flows into the US dollar may explain some of the strength," Chandler said.

The dollar had gained earlier in the week on better US trade data, but Friday's economic news was disappointing as the Commerce Department said retail sales fell by an unexpected 0.1 percent last month.

It marked the first decline in retail sales since February, with sales largely dragged down by a decline in auto sales.

The auto sector registered a drop in sales of 1.4 percent in June following a decline of 2.1 percent in the prior month despite auto maker sales incentives.

"It seems to confirm the slowdown in consumption growth in the second quarter. Consumption may be at two percent or less in the second quarter and most economists would have hoped that it would bounce back in the third quarter," said Ian Morris, chief US economist for HSBC North America.

"That remains the expectation, but this report opens some question on that," Morris said.

The retail report also suggested consumer spending -- which represents about two-thirds of US economic activity -- has slowed as oil prices and interest rates continue to rise.

Currency traders said they will be honing in on Federal Reserve chairman Ben Bernanke's testimony to Congress next Wednesday, seeking any hints on the future direction of US interest rates which the central bank has hiked 17th straight times to 5.25 percent.

In late New York trade, the dollar stood at 1.2340 Swiss francs from 1.2295 Wednesday.

The British pound was being traded at 1.8382 dollars after 1.8435 late Thursday.