The U.S. dollar fluctuated against other major currencies Friday, dropping against the euro and British pouond after data showed that U.S. non-farm payrolls fell in January by the largest amount in 34 years, while the market turned its attention to President Barack Obama's misguided fiscal stimulus package and bank-rescue plan.
The dollar index, which measures the U.S. unit against a trade-weighted basket of six major currencies, was at 85.78 in recent action, compared with 85.73 in North American trading late Thursday.
The greenback rose 0.6% against the Japanese yen to 91.68 yen, but fell against the euro and the British pound.
The euro rose 0.6% to $1.2862 and the British pound gained 0.7% to $1.4726.
"The dollar's rally against the Japanese yen suggests that traders believe the bad number will probably push the Obama administration to act quickly on passing the stimulus plan," said Kathy Lien, director of currency research at GFT.
'These numbers are dreadful but does it matter? No. All the prior labor market indicators, notably the claims data gave a feeling of foreboding before these numbers. The data broadly delivered.'
— Alan Ruskin, RBS Greenwich Capital
The Labor Department reported Friday that non-farm payrolls fell by a seasonally adjusted 598,000 in January after a revised loss of 577,000 in December, the government said. It's the largest payroll loss since December 1974.
The unemployment rate soared to 7.6%, compared with 7.2% in December. It's the highest unemployment rate since September 1992.
"These numbers are dreadful but does it matter? No," said Alan Ruskin of RBS Greenwich Capital in a note. "All the prior labor market indicators, notably the claims data, gave a feeling of foreboding before these numbers. The data broadly delivered."
About 3.6 million jobs have been lost since the recession began just over a year ago, representing about 2.6% of employment. About half of the jobs disappeared in the three months following the Sept. 14 collapse of Lehman Brothers Holding Inc. (LEH) .
On Wall Street, U.S. stocks surged, with the Dow Jones Industrial Average rising 151 points, or 1.9%, to 8,214.
"Global markets further stabilize as the escalating superlatives in the U.S. unemployment gloom increase the likelihood that the Senate will pass the $920 billion fiscal stimulus package as early as today," said Ashraf Laidi, chief market strategist at CMC Markets.
Stabilizing risk appetite has weighed on the U.S. dollar, the Swiss franc, the Japanese yen, and the Canadian dollar, while the biggest gainers have been the Australian dollar, the New Zealand dollar and the British pound, Laidi said.
Eyes on Washington
The Senate could vote on a huge economic stimulus plan on Friday if a bipartisan group of senators can reach an agreement on a compromise that would trim the size of the tax and spending bill, Senate Majority Leader Harry Reid said Thursday evening. See full story.
"Despite the staggering job losses, the markets are not terribly focused on the non-farm payrolls numbers today," Lien said. "Traders are hopeful about developments in Washington including a possible Senate vote today and a bank rescue package on Monday."
The Obama administration on Monday will release its "comprehensive plan" to revitalize the financial markets, which is expected to include a new strategy to deal with banks' bad assets and a new program to help troubled homeowners avoid foreclosure.
Secretary Timothy Geithner will unveil the plan in a speech on how Treasury will employ the second half of a $700 billion bank bailout package as well as other new programs to shock the financial markets out of the recession. Read more.
"From a risk appetite perspective, the market is unwilling to sell risk trades ahead of Geithner providing clarity on his plans for the U.S. financial sector," Ruskin said. "Currencies like the yen will fail to get any lift before then, while it will offer the emerging world some near-term protection."
Canadian dollar under pressure
The U.S. dollar was last up 0.8% against the Canadian dollar after surging to an intraday high of C$1.2539.
The loonie is "the worst performing currency after Canada's December payrolls fell by a record 129,000," Laidi said.
Employment fell by 129,000 in January, pushing the unemployment rate up 0.6 percentage points to 7.2%, Statistics Canada reported Friday.
This drop in employment exceeds any monthly decline during the previous economic downturns of the 1980s and 1990s, according to Statistics Canada.
Elsewhere in the currency markets, the British pound surged 0.7% against the greenback after hitting an intraday high of $1.4766.
Sterling also rallied in the previous session after the Bank of England cut its key interest rate to 1%. But data also came out from the lender Halifax, showing the first monthly house price rise in 11 months.
"Markets will not be confident that rates have reached their lowest point, but there will be speculation over a period of stability," said analysts at Sucden Financial.
The British pound also has been a beneficiary from growing global risk appetite. As one of the countries seen suffering the most from the credit crunch, the pound tends to rise when fears over the global economy abate, while the euro may also experience a similar move.