FOREX-Dollar slides as US jobs data boost Fed talk
* Underwhelming U.S. jobs report weighs on dollar
* Euro bounces from lows, Spain debt worries persist
* Options market reflect bias to euro weakness
By Luciana Lopez
NEW YORK, April 6 (Reuters) - The U.S. dollar slid on Friday in thin trading after sharply lower-than-expected U.S. jobs figures bolstered views the Federal Reserve could yet ease policy further to boost the world's biggest economy.
The greenback reversed early gains against the euro to post its first drop in five days after data showed U.S. nonfarm payrolls rose by 120,000 in March, far lower than the 203,000 expected in a Reuters survey.
The data were especially disappointing after recent numbers suggested a stronger recovery in the beleaguered jobs market.
"The question for the dollar is whether this is as viewed as an outlier in an otherwise improving trend in labor markets, or if it's viewed as enough to revive talk of another round of Fed policy easing," said Omer Esiner, chief market analyst with Commonwealth Foreign Exchange in Washington D.C.
"At the very least it will keep the door open to additional policy easing, more so than before the number was released. In that respect it's definitely a negative for the dollar."
The euro was last up 0.28 percent at $1.3100, bouncing from a three-week low of $1.3033 hit the previous session, according to Reuters data.
Nevertheless, dismal data from the euro zone, fears about Spain's debt levels, and expectations that European monetary policy will stay loose have the euro on track to notch a near 2-percent loss against the dollar this week.
The dollar was off 0.92 percent to 81.53 yen, on track for a loss of about 1.77 percent for the week.
Activity was light and trading desks thinly staffed, with the U.S. stock market closed and the U.S. bond market closed early in observance of the Good Friday holiday. Much of Asia was off as well.
"Monday's price action will be a lot more telling as participants in the U.S. and abroad digest today's jobs data," said Daniel Hwang, senior currency strategist at Forex.com in New York.
Hwang said euro uptrend technical support converges around $1.3150, the 100-day simple moving average.
"Raised expectations of Fed stimulus should cause some consolidation of the dollar next week, especially after this week's gains, and I think the euro is likely to test that support level."
The euro was also weighed by worries about Spain's high debt level as the hangover from a poor debt auction earlier in the week fueled concerns over the country's ability to tackle its fiscal problems.
"I'm negative on the euro. It's likely to keep extending losses below $1.30 as there's no event that could stop its decline amid worries over Spain," said Sumino Kamei, senior currency analyst at Bank of Tokyo-Mitsubishi UFJ in Tokyo.
Against the yen, the euro was at 106.80, down 0.66 percent after hitting a one-month trough at 106.52.
Unease about the prospect of the euro was reflected in the options market, with three-month risk reversals in the euro/dollar biased for euro puts, trading at -2.30 vols on Friday.
Euro/yen three-month risk reversals also showed partiality against the euro, trading at -3.65 vols, up from -3.45 vols on Thursday.
Broad selling led the euro to come close to 1.20 Swiss francs, a level breached the previous day for the first time since the Swiss National Bank set that level as a cap for the Swiss currency in September 2011 in a bid to curb a sharp rise.
The euro hit a low of 1.2004 francs, according to Reuters data, before recovering to last trade at 1.2009.
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