The dollar strengthened on Friday after US business surveys reflecting steady growth outweighed a surprisingly weak employment report for March and signalled continued interest rate hikes by the Federal Reserve. Data "showing continued manufacturing expansion ... played a key role in extending the post-payrolls recovery in the dollar," said Ashraf Laidi, chief currency analyst, at MG Financial in New York. By early afternoon in New York, the euro fell to $1.2908, down about 0.4 percent from late Thursday. The euro had risen as high as $1.3059 after a weak US employment report, according to Reuters data.
The Institute for Supply Management's manufacturing index slipped to 55.2 in March from 55.3 in February, broadly in line with market forecasts. However, the survey showed prices paid rose to 73.0 from 65.5, reinforcing inflationary expectations.
The ISM also released its non-manufacturing, or services, survey, earlier than expected. It showed the index jumping to 63.1 from 59.8, further boosting the dollar.
The non-manufacturing number was "unambiguously strong and helps to alleviate some of the concern from what was a pretty weak employment report. So I think this will get people onto the notion that the Fed is securely on the course of tightening," said Jason Bonanca, director of foreign exchange, Credit Suisse First Boston, New York.
Rising interest rates tend to boost the US currency as they enhance the attractiveness of some short-term dollar-denominated assets.
The dollar slumped briefly earlier in the session after a report showing the US economy generated just 110,000 non-farm jobs last month, much lower than economists' forecasts of 220,000 new jobs. February's jobs number was also revised down, to 243,000.
The greenback, however, recovered after details of the jobs report showed pockets of strength, such as the fall in unemployment and slight rise in wages.
"The dollar is rallying because we have come into a universe where widening spreads in the interest rate market are supporting the dollar," said Bonanca said.
Comments by Chicago Federal Reserve President Michael Moskow also supported the dollar's turnaround. He said the Fed was concerned about inflation, although it remained contained overall.
Moskow told CNBC television that the economy was generating jobs and one month of jobs data was not enough to shift the economic outlook. His view, however, was not shared by some on Wall Street.
"For me the key in this report is jobs growth and virtually every sector showed softer employment growth. More importantly, February jobs were revised back. In fact, net of revisions, we only actually had 83,000 jobs," said Richard Franulovich, senior currency strategist at Westpac Banking Corp in New York.
"This payrolls number significantly undercuts concerns about inflation. I cannot explain the drop in the euro, but certainly the fundamental backdrop that this number has given would have supported the euro at $1.30," Franulovich added.
Earlier in the session, the dollar reacted little to a University of Michigan report of weaker consumer sentiment in March and a lower-than-expected rise in construction spending.
The dollar rose to 107.54 yen, up 0.4 percent, after slipping to session lows at 106.77 yen on the employment report. A poor reading from the Bank of Japan's quarterly tankan survey of business sentiment earlier in the day also undermined the yen.
Against the Swiss franc, the dollar rose to 1.2030 francs. Sterling, meanwhile, was down at $1.8808.
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