The dollar fell against the euro and yen after a government report showing the US gained fewer jobs than projected last month added to evidence of a languid recovery in the economy.
"The employment numbers were weak and this is an impediment to future growth and capital inflows into dollar assets," said Robert Sinche, global head of currency strategy at Citibank, which handles the largest share of currency trading in the US$1.2 trillion-a-day market.
The greenback weakened to US$0.9868 per euro at 5pm New York time from 98.45 late Thursday. It slipped to Japanese yen 118.88 from Japanese yen 119.21. For the week, the dollar was little changed against both currencies.
Non-farm US jobs increased by 6,000 in July, compared with the 60,000 gain expected by economists in a Bloomberg News survey.
The unemployment rate was unchanged at 5.9 percent, as expected.
Demand for dollars fell after the report sent stocks lower.
The three most closely watched stock measures fell 2.3 percent or more. The dollar has traded in the same direction as stocks on nine of every 10 days in the past six months.
US factory orders slid a bigger-than-expected 2.4 percent in June, the biggest decline since November, the government also said. On Wednesday, the Commerce Department reported second-quarter economic growth expanded at an annual 1.1 percent pace, less than half the 2.3 percent rate forecast by economists.
The dollar, down about 10 percent this year against the euro and 9.3 percent against the yen, had its biggest slide in a week yesterday after a report showed US manufacturing slowed more than expected in July.
"The economic background is fundamentally dollar-negative," said Neill Nuttall, who helps oversee US$60 billion in currencies at JP Morgan Investment Management in London. "People no longer have the same expectations for returns in the US."
Signs of slower growth have driven some traders to step up bets that the Federal Reserve may cut interest rates again.
The yield on the October fed funds futures contract fell 7.5 basis points to 1.57 percent, showing traders see almost a 75 percent chance the Fed will reduce its overnight interbank lending target by a quarter-point to 1.50 percent in September.
Goldman, Sachs & Co economists said the Fed may cut the target as much as 75 basis points by year-end to 1 percent, according to an internal e-mail obtained by Bloomberg News. The rate has been at a 40-year low since December 2001.
"We've seen more people pricing in a Fed rate cut," said Lara Rhame, a foreign exchange economist at Brown Brothers Harriman & Co. Increasing talk about the Fed and that the economy may dip back into recession "is undercutting the dollar."
The dollar's losses were limited on signs the US economy is expanding faster than those of Europe and Japan, analysts said.
"The weak numbers here are matched by weak numbers in Europe," said John McCarthy, a manager of foreign exchange at ING Capital Markets LLC. "People are not certain at the moment that it's all bad news for the dollar."
Regional consumer confidence fell in July and Europeans are making fewer purchases than at any time in the past five years, a European Commission index showed Friday.
Reports this week showed that French consumer sentiment fell more than economists expected in July and its unemployment rate rose to a 20-month high. German retail sales slumped 2.2 percent in June.
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