The dollar closed in on last week's lows versus the yen and the Swiss franc on Monday as worries about a recession in the world's biggest economy dented investors' risk appetite and sparked a sell off in equities.
US data on Friday showed an unexpected second monthly fall in non-farm payrolls in February, sending the dollar to fresh record lows versus the euro, the Swiss franc and a basket of major currencies and eight year lows against the yen.
Although the greenback rebounded later on Friday as investors focused on a package of liquidity-boosting measures from the Federal Reserve, risk aversion returned on Monday as Japan's benchmark Nikkei fell to its lowest in 2-1/2 years and European stocks also eased.
Such an environment tends to benefit the yen and the Swiss franc, as investors unwind relatively risky carry trade bets previously funded by borrowing in these low-yielding currencies. "It (payrolls) was unambiguously weak data...Two consecutive payroll falls and other bits of data last week are all pretty consistent with a recession, which we think started late last year," said Steve Barrow, chief currency strategist at Bear Stearns.
At 1049 GMT the dollar was down 0.6 percent at 102.24 yen, edging back towards Friday's eight-year low of 101.41 yen. It also fell a quarter of a percent to 1.0226 Swiss francs and eased versus the euro to $1.5370.
The spotlight is now on psychological levels: the previously unbreached parity level with the Swiss franc, $1.60 per euro and the 100 yen per dollar level not seen in over a decade.
The dollar's index against a trade-weighted basket of major currencies, eased to 72.856, in sight of the record low of 72.462 hit on Friday. The dollar got some relief on Friday after the Fed announced a series of term repurchase operations totalling $200 billion to ease liquidity pressures, but analysts said this did not change the longer term outlook for the US currency.
Investors still expect the Fed to cut interest rates by 75 basis points from 3 percent this month, while the European Central Bank held policy at 4 percent last week and poured cold water on any expectations of near-term easing.
Furthermore, ECB President Jean-Claude Trichet declined last week to refer to the euro's rise as "brutal", simply saying that excessive volatility was bad for economic growth and that the US had a strong dollar policy. "The dichotomy between the Fed, who are supporting market expectations for further easing and the ECB, who are correcting market perceptions for lower rates, support the case for further euro/dollar upside and we reiterate our forecast of $1.55 for the euro by the end of March," J.P. Morgan said in a client note.
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