The dollar fell against the euro and yen Friday in volatile trading as investors digested the U.S. March jobs report and focused on the rise in the unemployment rate.
Government data showed U.S. employers cut payrolls for a third straight month last month while the unemployment rate jumped sharply to 5.1 percent from 4.8 percent, which some investors took as increasing the likelihood of more aggressive U.S. interest rate cuts which undermine demand for the dollar.
The drop of 80,000 jobs in the March non-farm payrolls report was the biggest monthly decline in five years as the economy headed into a downturn.
"The market focus of the U.S. employment report in 2008 will increasing turn to the unemployment rate rather than non-farm payrolls itself," said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon in a research note.
"In this respect, today's jump in unemployment to 5.1 percent may well be a harbinger on things to come." The euro was up against the dollar, but still well off March's record peak above $1.59.
The dollar traded lower against the yen , but was still on track for its biggest weekly percentage gain since December 2004 at current prices.
The dollar fell against a basket of six currencies, and eased versus the Swiss francs .
The dollar at first tumbled on the jobs report, but even as it fell, some foreign exchange analysts were suggesting the dollar's downward momentum would be short-lived.
That briefly proved correct with the dollar moving back into positive territory against the yen before resuming its decline.
Investors then returned to their initial negative bets on the U.S. currency.
Has Fed Done Enough?
Overall, investor sentiment has improved in recent sessions, and futures traders are now expecting only a 25 basis point rate cut from the Federal Reserve this month.
Late on Thursday, San Francisco Fed President Janet Yellen echoed comments on the economy made by Fed Chairman Ben Bernanke earlier this week, saying the U.S. economy has "all but stalled and could contract" in the first half of 2008.
The Fed has slashed rates since September by a total of 3 percentage points to 2.25 percent in an effort to battle the credit crisis and shield the economy from an ailing housing sector.
"While the real funds rate is lower now than at comparable periods of labor market deterioration in the past, the current combination of economic weakness and credit market problems point to more easing," said Peter E. Kretzmer, senior economist at Bank of America.
Elsewhere, the Australian dollar managed a 0.6 percent gain against its U.S. counterpart despite February retail sales in Australia unexpectedly dipping 0.1 percent from the previous month.
Reserve Bank of Australia Governor Glenn Stevens said on Friday that growth in domestic demand was moderating despite uncomfortably high inflation, suggesting that interest rates had risen enough for now.
In Canada, the dollar was up 0.4 percent against the Canadian dollar after an early government report showed that Canada's unemployment rate rose more than expected, fueling expectations for rate cuts from the Bank of Canada.