Although the greenback dipped slightly in early European trading on Friday, it was still on track to post its third straight weekly gain as prospects for a rate hike in the US increased.

The dollar index that gauges the greenback versus its major pairs slumped by 0.1% to 104.040, slightly below the 104.31 two-month peak set on Thursday.

Despite slight losses on Friday, the dollar is still on track to post a weekly gain of less than 1%, which would be its third consecutive gain, as traders prepare for the possibility that U.S. interest rates will stay higher for longer.

The failure to negotiate a deal to raise the U.S. government's $31.4 trillion debt ceiling, with the early-June deadline looming closer, has also helped the dollar this week, given its standing as a safe haven.

EUR/USD inched up to 1.0731, even as European Central Bank officials make hints about additional interest rate increases to rein in still-high inflation, remaining close to a two-month low.

GBP/USD advanced by 0.2% to 1.2344 post British retail sales advanced beyond projections in April.

USD/JPY plunged by 0.2%  to 139.78.