Dollar hurt by weak consumer data

NEW YORK (CNNMoney.com) -- The dollar fell Friday against most major currencies except the yen as investors digested conflicting reports on retail sales and consumer confidence.

What prices are doing: The dollar was down 0.6% versus the euro to $1.3765. It fell 0.8% against the British pound to $1.5187. Against the Japanese yen, however, the dollar was unchanged at ¥90.50.

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Click the chart for current FX rates.

The retreat comes at the end of a lackluster week for the dollar. The dollar index (DXY), which measures the greenback against a basket of currencies, slid to 79.82 from a high near 80.75 on Tuesday.

The dollar started the week softer on Monday, slipping against the euro after French President Nicolas Sarkozy said Europe is ready to help Greece if needed, boosting investor optimism about the nation's debt crisis. Economic reports were mixed throughout the week, from jobs to the trade deficit.

What's moving the market: The Commerce Department's monthly report on retail sales showed a 0.3% increase, following a 0.5% dip in January. That surprised economists who expected sales to fall 0.2% in February, according to Briefing.com.

The dollar initially rallied after the report was released. But the advance faded along with gains in U.S. stock markets following a surprise decline in a key index of consumer sentiment.

The Reuters/University of Michigan index of consumer sentiment fell to a reading of 72.5 in early March from 73.6 in the previous month. Economists had expected the index to climb to 74.

Also weighing on sentiment, government data showed January business inventories were flat, versus a forecasted 0.1% rise.

Meanwhile, the euro and the pound were supported by upbeat economic data from Europe and expectations that E.U. policy makers will keep stimulus efforts in place for a prolonged period of time.

In addition, investors are looking ahead to next week's meeting of the Federal Reserve.

The U.S. central bank is expected to hold interest rates steady at historic lows near zero percent. But some analysts said recent comments from Fed officials suggest the central bank could alter its policy statement to reflect growing concerns about inflation.

The week ahead also brings reports on housing starts and building permits, as well as readings on inflation at the wholesale and consumer levels.

What analysts are saying: "In this environment, there is likely to be increased expectations of a change in the Fed's language following next week's meeting," analysts at Sucden Financial Research wrote in a research report.

"This speculation should provide some support to the dollar, although buying will be limited by doubts whether interest rates will actually be increased in the short term," the report said.