The U.S. dollar fell against its key counterparts in the European session on Friday, as the nation's economic activity increased in line with economist estimates in the second quarter.

Data from the Commerce Department showed that the real gross domestic product climbed by 2.6 percent in the second quarter after rising by a downwardly revised 1.2 percent in the first quarter.

Economists had expected GDP to increase by 2.6 percent in the second quarter compared to the 1.4 percent growth that had been reported for the previous quarter.

Concerns about the latest developments in Washington also weighed on the currency after Republican efforts to repeal and replace Obamacare failed in Senate again.

The so-called "skinny repeal" failed by a vote of 49 to 51, with three Republican Senators joining with Democrats to stop the bill.

Investors look forward to the University of Michigan's revised report on consumer sentiment in July, due at 10:am ET. The index is expected to be unrevised from the preliminary reading of 93.1.

The greenback fell against its major counterparts in the Asian session, with the exception of the franc.

The greenback dropped to 0.9645 against the Swiss franc, following more than a 4-week high of 0.9727 hit at 7:30 am ET. The next likely support for the greenback-franc pair is seen around the 0.95 region.

The greenback edged down to 110.84 against the Japanese yen, after having advanced to 111.33 at 5:45 pm ET. The greenback is seen finding support around the 109.00 level.

Data from the Ministry of Internal Affairs and Communications showed that Japan's overall nationwide consumer prices rose 0.4 percent on year in June - in line with expectations and unchanged from the previous month.

Nationwide core CPI, which excludes food prices, also gained 0.4 percent on year - again unchanged and as expected.

The greenback reached as low as 1.1753 against the euro, which is near a 2-1/2-year low of 1.1777 set on Thursday. The greenback is poised to challenge support around the 1.19 area.

Preliminary data from Destatis showed that German inflation accelerated unexpectedly to a 3-month high in July on energy prices.

Inflation, based on consumer prices, grew 1.7 percent annually, slightly faster than the 1.6 percent rise posted in June. Inflation was forecast to ease to 1.5 percent.

The greenback that ended Thursday's trading at 1.3062 against the pound edged down to 1.3118. Continuation of the greenback's downtrend may see it challenging support around the 1.33 region.

The greenback weakened to 1.2440 against the loonie, 0.7502 against the kiwi and 0.7994 against the aussie, off its early high of 1.2567, 2-day highs of 0.7460 and 0.7937, respectively. If the greenback extends decline, 1.22, 0.76 and 0.81 are likely seen as its next support levels against the loonie, the kiwi and the aussie, respectively.

At 1:20 pm ET, Federal Reserve Bank of Minneapolis President Neel Kashkari is expected to speak at a town hall event, in Minnesota.

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