TORONTO (Reuters) - The Canadian dollar strengthened against its U.S. counterpart on Friday as investors cheered U.S. inflation data, with the loonie paring its weekly decline after it was pressured by a more hawkish Federal Reserve and domestic political turmoil.

The loonie was trading 0.3% higher at 1.4350 to the U.S. dollar, or 69.69 U.S. cents, extending its recovery from the weakest intraday level in nearly five years at 1.4467 on Thursday.

For the week, the currency was down 0.8%, its fourth straight weekly decline.

"It's been a hard week for the CAD," Shaun Osborne, chief currency strategist at Scotiabank, said in a note.

"Strong U.S. economic data and more hawkish-than-expected messaging from the Fed this week have supported broad gains in the USD and it's hard seeing that trend reverse any time soon."

On Wednesday, the Fed signaled it would slow the pace of interest rate cuts. This followed the abrupt resignation on Monday of Canadian Finance Minister Chrystia Freeland.

"Freeland's spectacular departure Monday raises clear question marks over PM Trudeau's position and the stability of the government at a time when the threat of U.S. tariffs requires strong leadership at home," Osborne said.

Prime Minister Justin Trudeau looked set to lose power early next year after a key ally said he would move to bring down the minority Liberal government and trigger an election.

Wall Street's main indexes jumped and the U.S. dollar fell against a basket of major currencies on a smaller-than-expected increase in the U.S. personal consumption expenditures (PCE) price index.

Data showed that Canadian retail sales grew by 0.6% in October but a preliminary estimate for November was less upbeat, showing a flat reading.

Canadian bond yields fell across the curve, tracking moves in U.S. Treasuries. The 10-year was down 7.8 basis points at 3.269%.

(Reporting by Fergal Smith; Editing by Frances Kerry)