The dollar dipped against most major currencies on Friday after data showed US employers cut 240,000 jobs last month, pushing the jobless rate to a 14-year high and adding more dark clouds to a gloomy economic horizon.
US President-elect Barack Obama, in his first press conference since winning the election, said the United States was facing "the greatest economic challenge of our lifetime" and called for a stimulus package "sooner rather than later."
Wall Street gained, however, after two straight days of steep losses, helping lift the dollar against the yen and limit its losses elsewhere. Analysts said that was partly because the jobs data underscored what investors already know: the US labour market is under severe strain.
"The jobs number was bad, as expected, so we've seen some dollar selling against the euro, but markets had already priced in disaster," said Ken Landon, global currency strategist, at J.P. Morgan Chase in New York. "So we're seeing a bit of risk aversion coming off, with stocks higher." The outlook for the US and global economies, though, remains a dreary one, and both the dollar and euro were set to end the week down against the yen, a sign of risk aversion.
Central banks in Britain, the euro zone and Switzerland all slashed interest rates this week, and analysts said Friday's US data showing 1.2 million jobs lost so far in 2008 suggests the Federal Reserve may again cut its 1 percent benchmark rate. Late afternoon, the euro was up 0.5 percent against the dollar at $1.2760, but was little changed on the week. The euro rose 1 percent against the yen to 125.35.
Sterling rose 0.4 percent to $1.5673, while the dollar added 0.5 percent to 98.230 yen. For the week, the dollar was 0.4 percent weaker against the Japanese currency, a sign that risk-averse investors continue buying back yen that they had used to finance purchases of higher-yield, higher-risk assets.
Friday's US data fanned fear of a much deeper slowdown in both the US and global economies. Following the report, the interest rate futures market had fully priced a quarter-point cut in the Fed's benchmark interest rate in December and put the odds of a half-point cut at better than around 64 percent.
Still, analysts are convinced the dollar will continue to rally despite the data and increased odds of a rate cut. That's because a worsening global economic outlook should keep investors routing money back into safe-haven dollar assets such as US Treasury debt.
"The dollar is in this unusual spot of responding more to the data's message for risk appetite than for Fed policy now that dollar rates are approaching zero," said Alan Ruskin, chief international strategist at RBS Global Banking and Markets in Greenwich, Connecticut. Some strategists said they were cheered by Obama, who said he was moving quickly to fill Cabinet positions in his administration.
Obama's comments sent "a strong message that he is already on the job," said Greg Salvaggio, senior vice president for capital markets at Tempus Consulting in Washington. "He is showing he will be ready to hit the ground running."