The single European unit soared as high as 1.3812 dollars in early afternoon deals before falling back to 1.3797.

The pound also jumped to 2.0367 dollars, marking a fresh 26-year high point for the British currency.

The dollar's fresh falls came after the US Commerce Department revealed that US retail sales fell unexpectedly in June, as American consumers cut back their spending amid a persistent housing slump and higher gasoline costs

Sales fell by 0.9 percent, defying most Wall Street analysts' forecasts that they would remain unchanged.

"More bad news for the greenback," said CIBC economist Audrey Childe-Freeman.

He added: "Overall, a weaker than expected performance for the US retail sector and while the poor weather (and higher gasoline prices) may have something to do with it, this remains a soft data."

This week, the euro has steadily risen to record heights with economic growth in the eurozone widely expected to outpace other major economic powers such as the United States and Japan this year.

Concerns about the troubled US sub-prime mortgage sector spreading to the wider economy have also weighed heavily on the dollar.

Earlier Friday, the euro also hit a record high 168.95 yen on expectations that Japanese interest rates will remain low for some time, in contrast with the prospect of higher eurozone borrowing costs in the coming months.

"Interest rate differentials are weighing heavily on sentiment towards the yen," said Masaki Fukui, senior market economist at Mizuho Corporate Bank.

"Although the Bank of Japan is very likely to raise its interest rate next month, the level (of Japanese rates) is still very low," Fukui said.

The BoJ left its benchmark interest rate on hold at 0.5 percent on Thursday, with many players expecting a rate hike in August.

The European Central Bank, meanwhile, appears set to lift its key rate again from 4.00 percent in early September.

The soaring strength of the euro has had little impact on the economy of the 13-nation eurozone, EU Economic and Monetary Affairs Commissioner Joaquin Almunia said earlier Friday.

Almunia's comments came amid a political stand-off between Germany and France. Germany has dismissed French President Nicolas Sarkozy's calls for a brake on the euro's rising value, amid claims that it hampers exporters.