The U.S. dollar fell against its major counterparts in the European session on Friday, as U.S. housing starts unexpectedly fell sharply in May, eroding optimism over performance of the housing industry in the second quarter.

Data from the Commerce Department showed that the housing starts slumped by 5.5 percent to an annual rate of 1.092 million in May from the revised April estimate of 1.156 million.

The significant decline surprised economists, who had expected housing starts to climb to a rate of 1.215 million from the 1.172 million originally reported for the previous month.

The Commerce Department said building permits also tumbled by 4.9 percent to a rate of 1.168 million in May from a revised 1.228 million in April.

Building permits, an indicator of future housing demand, had been expected to rise to a rate of 1.250 million from the 1.229 million that had been reported for the previous month.

Investors await the University of Michigan's preliminary report on consumer sentiment in the month of June. The consumer sentiment index is expected to be unchanged at 97.1.

The greenback was higher against its most major rivals in the Asian session, as treasury yields rose in the wake of strong US economic data released on Thursday.

The greenback remained lower at 1.1171 against the euro, off its early high of 1.1138. The next possible support for the greenback is seen around the 1.13 region.

Data from Eurostat showed that Eurozone inflation slowed as estimated in May, largely reflecting the slowdown in energy price growth.

The greenback fell to a session's low of 1.2796 against the pound, after having advanced to 1.2751 at 5:15 pm ET. The greenback is likely to challenge support around the 1.29 area.

Reversing from an early 2-week high of 111.42 against the Japanese yen, the greenback eased to 111.10. On the downside, 110.00 is likely seen as the next support level for the greenback-yen pair.

The Bank of Japan kept its monetary stimulus unchanged as widely expected.

Governor Haruhiko Kuroda and his board members decided by an 7-2 majority vote to hold its target of raising the amount of outstanding JGB holdings at an annual pace of about JPY 80 trillion.

The greenback pared its early gains against the Swiss franc with the pair trading at 0.9744. This may be compared to a high of 0.9757 hit at 1:30 am ET. The greenback is seen finding support around the 0.95 level.

The greenback slipped to 0.7244 against the kiwi and 0.7616 against the aussie, off its early highs of 0.7194 and 0.7576, respectively. Continuation of the greenback's downtrend may see it challenging support around 0.73 against the kiwi and 0.78 against the aussie.

The greenback dropped to a 2-day low of 1.3222 against the loonie, and held steady thereafter. The pair finished Thursday's trading at 1.3268.

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