The dollar fell after a report showed U.S. employment growth in April was the lowest since November 2004, signaling that the U.S. economic slowdown has finally caught up to the labor market.
The data cast a cloud over near-term U.S. economic growth prospects and lent support to the case for an interest rate cut by the Federal Reserve later this year.
The dollar earlier this week enjoyed its biggest rally in two months against some of the most liquid currencies, after reports showed strength in both the U.S. manufacturing and services sectors in April, snapping a string of weak data.
The April jobs report told a different story, however. Employers added 88,000 jobs to their payrolls last month, fewer than forecast and about half of March's total. It also revised down the number of jobs created in March and February, suggesting the labor market was not as resistant to the slowing economy as previously thought.
"The jobs report wasn't good, but far from being a disaster. The dollar's sell-off is just a continuation of the trend," said Mark Meadows, currency analyst at Tempus Consulting in Washington.
"Until next week, when we have central bank meetings, we are likely to keep seeing the buck sliding," he said. The Fed holds a one-day policy meeting on Wednesday.
The euro rose to session highs around $1.361 before edging down to . A week ago the euro climbed to a record high of $1.3683, according to electronic platform EBS.
The dollar fell to an intraday low of 119.92 yen. On Thursday, it rose to a two-month high just below 120.50 yen.
The payrolls report also revised down the number of jobs created in March by 3,000 and in February by 23,000 -- suggesting the labor market has been slowing alongside the economy throughout this year.
Up Next: Fed Meeting
Although the April jobs data was modestly dollar negative, some investors may stay on the sidelines ahead of next week's Fed meeting.
"This report has a slight tinge of weakness overall and is lightly tilted in favor of a Fed easing," which is ultimately negative for the dollar because it erodes the greenback's yield advantage over other major currencies, said David Gilmore, partner with FX Analytics in Essex, Connecticut.
The dollar has weakened considerably in the past year, falling to 26-year lows against sterling and all-time lows against the euro, mainly because of slowing U.S. economic growth at a time when other major economies are still showing signs of robust growth.
Investors are expecting the Fed to keep interest rates at 5.25% next week but then cut interest rates at least once later this year, compared with forecasts for higher rates in the euro zone and Britain, among other economies.
The dollar index slipped 0.2% to 81.781 after having traded earlier at its highest since April 17.
The Australian dollar fell to , near a four-week low after the Australian central bank lowered its forecast for underlying inflation, suggesting rates were on hold for the rest of the year.