The dollar swung higher against major currencies on Friday after US employment data came in firm enough to boost expectations that the US Federal Reserve will raise interest rates at its next meeting.
As New York exited trading on Friday in a truncated session before the extended Labor Day holiday weekend, the euro was at US$1.2071, down from US$1.2157 late Thursday.
The dollar rose to ¥110.60 from ¥109.46. The pound was changing hands at US$1.7759 versus US$1.7892. The dollar was higher at 1.2693 Swiss francs from SF1.2628. Against the Canadian dollar, however, the dollar was slightly lower at CS$1.2988 from CS$1.3008 late Thursday.
Another positive factor was a fall in the unemployment rate to 5.4 percent, the lowest rate since October 2001.
"Taken together with revisions and lower than expected unemployment rate the outcome is actually better than expected," giving support to the dollar, said CALYON analyst Mitul Kotecha.
"Although jobs growth remains moderate, the data should help allay fears of a renewed weakening in the job market," he said, adding that interest rate expectations "should firm further towards expectations of a Fed hike on Sept. 21".
The payrolls did not constitute a "regime-changing number," however, HBOS currency analyst Steve Pearson noted.
More likely, the data will simply be sufficient to push the euro toward the bottom of the range against the dollar which it has seen over the summer -- toward the US$1.20 mark, perhaps a little lower, he said.
The market will then have to wait until next month's payrolls figures to see whether the positive trend is sustainable, and until then the dollar is likely to continue to range-trade, Pearson said.
For the time being, the market will be awaiting Federal Reserve Chairman Alan Greenspan's congressional testimony next week for further clues as to the direction of US interest rates.
"The chairman is likely to convey a relatively upbeat assessment of the economy's prospects, suggesting that further interest-rate hikes lie ahead," said Lynn Reaser, chief economist at Banc of America Capital Management.
Elsewhere, the pound was weak, both against the dollar and the euro, after further evidence emerged on Friday that the UK housing boom is finally coming to an end as the Bank of England's five interest rate hikes since November take their toll.
The morning's Halifax survey showed house prices fell 0.6 percent last month from July, backing up the findings of Nationwide's survey earlier this week.
The euro meanwhile did not react to news that the European Commission has approved reforms to the EU's Stability and Growth Pact, giving governments more budget flexibility in times of slow growth.
The dollar's sharpest gains came in the moments immediately following the release of the payroll data at 8:30am. The US currency shot rapidly to session highs against most major currencies.
Those kneejerk moves triggered a series of stop-loss orders, which exacerbated the movements, said Jason Bonanca, director and foreign exchange analyst at Credit Suisse First Boston in New York.
"It's a good number, but not as good as the dollar's reaction would have you believe," he said.
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