Dollar Retreats vs. Euro After US Jobs Gloom

The dollar slid against the euro and a basket of major currencies Friday after data showed steep U.S. job losses in the last three months, although its fall was limited by gains in the stock market.

Following a rally in U.S. equities, the dollar rose versus the yen, with analysts saying the jobs report was not as dismal as many had initially feared.

But October's 240,000 decline in non-farm payrolls was higher than most market expectations and fanned fears of a much deeper slowdown for the world's largest economy. Some in the market had priced in job losses of as much as 450,000, which helped cushion the impact of the data.

"The jobs number was bad, as expected, so we've seen some selling in the dollar against the euro. But markets had already priced in disaster,'' said Ken Landon, global currency strategist at JP Morgan Chase in New York. "So we're seeing a bit of risk aversion coming off, with stocks higher.''

In midday New York trading, the euro was upagainst the dollar at over $1.27. For the week, the euro partly retraced some of its losses and was up 0.2 percent at current prices.

Against the yen, the dollar slipped  to around 98.15 yen.

The ICE Futures' dollar index, a measure of the greenback's value against six major currencies, fell 0.2 percent to 85.698.

The employment report also showed a revised drop in September jobs, the largest in nearly seven years. In total over the three months through October, 651,000 jobs have been slashed from payrolls, and 1.2 million so far this year.

Report Reflects Recession

"October's jobs report continues to paint a picture of a labor market dealing with an overarching recession,'' said Meny Grauman, an economist at CIBC World Markets in Toronto.

"We are now seeing the type of triple-digit monthly job losses that have accompanied all other U.S. recessions ... And although indications are that massive government intervention is taking us back from the brink, this will not be enough to stave off hundreds of thousands of further job losses and even higher unemployment.''

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Following the report, the interest rate futures market fully priced a quarter-point cut in the federal funds rate from the Federal Reserve in December, to 0.75 percent. Implied prospects for a half-point cut are at 64 percent against 58 percent late Thursday.

Still, analysts are convinced the dollar will continue rallying despite this setback on the employment front and increased expectations of further rate easing.

Alan Ruskin, chief international strategist at RBS Global Banking and Markets in Greenwich, Connecticut, said the jobs data sends a "significant negative message for risk,'' which should help the dollar over the coming months.

"The dollar is in this unusual spot of responding more to data message for risk appetite than for Fed policy, now that dollar rates are approaching zero,'' Ruskin said.

Markets will closely watch President-elect Barack Obama's news conference around 1930 GMT after a meeting with his economic advisers.

Obama has acknowledged the urgency of revitalizing the economy and is expected to make key appointments to his economic team soon.

"We will be watching how equities react to Obama's briefing and that will be key for the dollar,'' said Joe Manimbo, a market analyst at Ruesch International in Washington. "We've seen risk aversion come off a bit. We will have to wait and see whether he can reassure the market further and then we will probably see some selling in the dollar, except perhaps against the yen.''

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