The fourth straight below-forecast reading on the consumer price index in June pushed inflation further away from the Fed's 2-percent goal.
Excluding food and energy prices, core consumer prices crept up by 0.1% for the third consecutive month. The core CPI increased 1.7% year-on-year - still short of the Fed's 2% target.
The U.S. dollar decline dafter data showed U.S. inflation in June was unchanged from the previous month and retail sales unexpectedly weakened, fueling doubts about an interest rate increase later this year.
Overall retail sales fell 0.2 percent for the month to $473.5 billion, a surprise to analysts who had forecast an increase of 0.1 percent.
The 10-year yield settled at 2.319%, compared with 2.348% Thursday and 2.393% a week earlier. The British pound rose sharply against the greenback on Friday, climbing more than 1 percent after data further undermined expectations for more hikes in US interest rates. Ex-auto sales were expected to rise by 0.2%.
United States interest rates futures rose as traders pared their view the Fed would increase rates again in 2017.
Among mid-caps, Carillion CLLN.L saw a small relief bounce from heavy losses this week, rising 1.3 percent after the crisis-hit construction and support services contractor hired HSBC as joint financial adviser and corporate broker, amid speculation it is preparing a rights issue. "The bigger market-wide events are rate decisions out of Europe and Japan along with an updated inflation print out of the United Kingdom; and this will likely be where the bulk of market participants" attention remains. Matters appeared to kick-off even before Chair Yellen's opening statement was read at 10:00 AM on Wednesday, as the Monetary Policy Report to Congress that was released at 8:30 AM seemed to catch trader's attention as the final paragraph of the report reiterated the "Fed Put" that has helped to keep equity prices elevated.
Against the Japanese yen, the dollar was down 0.65% to 112.53 yen, after hitting a near two-week low of 112.28 yen.
The euro gained 0.64 per cent to US$1.468 (RM6.28).
But, and this was enough for salivating bulls looking for hints that rate hikes could slow down or pause, "As we indicate in our statement, it's something we're watching very closely, considering risks around the inflation outlook".
The Fed has raised rates twice this year and is expected to do so once more, though probably not until December.
The Dow Jones Industrial Average rose 19.57 points, or 0.09 per cent, to 21,572.66. Retail sales rose 2.8 per cent year-on-year in June.
Ten of the 11 major S&P sectors rose, with information technology .SPLRCT up 0.89 percent to lead the advancers.
Brent crude futures, the global benchmark for oil, were up 31 cents at $48.73 per barrel.
Oil rose 1 percent on Friday, boosted by lower US stockpiles, a slight slowdown in USA crude production and signs of increased Chinese demand, but trading was volatile as global supply remained strong.