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Dollar undermined by softer-than-expected US jobs data

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The dollar fell on Tuesday, as a delayed U.S. jobs report bolstered speculation that monetary policy would err on the side of looseness, just a week after the government shutdown ended.

Most market participants expect the negative impact of the shutdown on the economy will lead the U.S. Federal Reserve to delay scaling back its stimulus program until 2014. The dollar got little support from data showing the U.S. economy added just 148,000 jobs in September, considerably worse than expected and raising new speculation about the Fed's determination to keep monetary policy accomodative.

The dollar index, which tracks the dollar's performance against a basket of major currencies, was unchanged near 79.73, holding above Friday's 8-1/2 month low of 79.478.

(Read more: Big jobs Tuesday: Better late than never?)

The euro jumped above $1.37, its strongest since early February, and breaking free of chart resistance at the 2013 peak of $1.3711.

Chicago Fed President Charles Evans said on Monday it would be "tough" for the Fed to have enough confidence in the economy by its December meeting to start scaling back stimulus.

IHS: Sept Non-farm payrolls may disappoint

The fiscal deal clinched last week by U.S. lawmakers only restored government funding until Jan. 15.

The dollar was flat near 98 yen.

(Read more: Be patient, the yen trade is not over yet)

The was flat around 97 cents, close to a 4-1/2 month high set on Friday. A move above 97 would see it retrace half of its April-to-August fall and could allow a move towards parity.

Morgan Stanley's Stannard expected the Australian dollar to outperform and rise towards $0.98 in the near-term as it benefits from higher interest rates and the fact that Australia has stronger links to China than to the United States.