NEW YORK The dollar sank on Friday and is likely to drop further in the week ahead after weak U.S. jobs data added to evidence of a marked economic slowdown.
The negative sentiment in the United States contrasted with cautious optimism in the euro zone, with the euro touching a one-month high on optimism that Greece will receive its next aid payment and avoid restructuring its debt.
The single currency surged after the European Union, the European Central Bank and the International Monetary Fund said the next tranche of international aid for Greece should be available in July.
Add in a European Central Bank policy meeting, where ECB President Jean-Claude Trichet is expected to signal a July interest-rate hike by using the term "vigilance" in reference to monitoring inflation, and the dollar has little upside.
"The next few weeks will see broad choppy ranges," said Gareth Sylvester, senior currency strategist at San Francisco-based Klarity FX. "So many questions remain."
But with the ECB meeting, interest-rate differentials will be a key focus and investors, will "forget about debt problems," Sylvester said.
The greenback tumbled to an all-time low against the safe-haven Swiss franc and hit a one-month trough against the yen. While the greenback remains vulnerable to cheapening on economic weakness, the euro took out a key resistance level that could result in further gains.
The euro rose as high as $1.4643 on trading platform EBS. It was last trading at $1.46336, up 1 percent for the day.
The rise above $1.4569 was the 61.8 percent Fibonacci retracement of last month's drop from $1.49404 to $1.39680. Traders said the breach of that level was a bullish signal and suggests the euro could rack up further gains to $1.49.
One-month euro/dollar risk reversals last traded at -2.075 on Friday, according to Reuters data, with a bias toward euro puts and dollar calls, suggesting more investors are betting the euro will fall than those who believe it will rise. But that was up from the -2.375 it traded at just a week ago, suggesting improving sentiment on the single currency
The slowing U.S. economy has complicated the contentious issue of the U.S. debt ceiling and the need for fiscal tightening, said Lena Komileva, senior vice president, global head of G10 strategy at Brown Brothers Harriman in London.
"While there is no question about the market's desire to fund the U.S. fiscal gap, especially as a slowing recovery shifts investors' focus back to capital markets and increases demand for U.S. Treasuries, a worsening outlook for U.S. public finances will further dent the dollar's relative advantage as a safe-haven major," she said in a report.
U.S. employers hired far fewer workers than expected in May and the jobless rate rose to 9.1 percent. Nonfarm payrolls increased 54,000 last month, the weakest reading since September, the Labor Department said on Friday.
"The headline surprise, compounded by downward revisions and an unexpected rise in the unemployment rate, contributed to a growing list of negative data reflecting a definitive soft patch in the U.S. economic recovery," said Michael Woolfolk, managing director at BNY Mellon Global Markets in New York.
"The greater surprise is not the U.S. slowdown was unexpected, but rather that it was so pervasive -- reflected in housing, labor, manufacturing and consumer spending data," he added.
The dollar tumbled to its lowest on record against the safe-haven Swiss franc. It was last at 0.8350, down 0.9 percent. Against the yen, the dollar fell to a one-month low before recovering slightly to 80.20, down 0.8 percent. The dollar/yen dropped along with U.S. Treasury yields.
For the week, the euro gained 2.2 percent against the dollar, its best week since January 16, while the dollar lost 0.7 percent against the yen.
The U.S. Dollar Index .DXY, which measures the dollar's performance against a basket of major currencies, was down 0.8 percent for the week at 73.742.
Until the dollar index can strengthen above 76.5, any dollar advance will be limited, Klarity's Sylvester said.
(Reporting by Nick Olivari and Julie Haviv, Editing by Chizu Nomiyama)