Grim Jobs Data Pressures Dollar

The U.S. dollar declined Friday after the Labor Department said more jobs were lost in October than forecast, indicating continued pain for the economy.

The dollar index, a measure of the greenback against a trade-weighted basket of six currencies, fell to 85.826 from 86.280 in late trading Thursday.

The economy lost 240,000 jobs last month, more than the 210,000 estimated by economists surveyed by MarketWatch. September payrolls were also revised downward. The unemployment rate rose to 6.5%, highest in 14 years. Economists expected it to rise to 6.3% from 6.1%.

The euro rose to $1.2758, up from $1.2677. The British pound rebounded to $1.5703 against the dollar from $1.5530.

"The economy is likely to continue on a deteriorating path," said Christopher Sullivan, chief investment officer at United Nations Federal Credit Union. "I don't think anyone has a good idea of when a recovery might materialize."

That's likely to prompt the Federal Reserve to lower its target interest rate from 1% this year, , reducing the appeal of low-yielding dollar-based assets, he said.

The pound and euro sank Thursday after the Bank of England and the European Central Bank cut interest rates. The BOE Monetary Policy Committee slashed its benchmark by an unexpected and unprecedented 1.5 percentage points to 3%. The ECB dropped its key rate by a half point to 3.25%.

The dollar was buying 98.03 yen, versus 97.43 late Thursday.

The yen was the ultimate beneficiary of financial turmoil and surging risk aversion, soaring in October as investors stampeded out of once-popular carry trades. Such strategies are based on borrowing in low-yielding currencies, such as the yen, and using the proceeds to buy assets denominated in higher-yielding currencies.

The dollar has also been a beneficiary of rising risk aversion. Massive global deleveraging and repatriation of dollars from overseas and safe-haven flows served to boost the greenback in October.

Since the start of the month, a modest return of risk appetite had seen the yen and dollar retreat slightly from October's big gains.

But with equity markets falling Wednesday and Thursday, the sustainability of the risk-appetite revival appears questionable, analysts said.

In particular, the weak finish by U.K. and European equities in the wake of rate cuts by the Bank of England, the ECB and other European central banks "suggests that higher-yielding and emerging market currencies along with the euro and sterling are now vulnerable to renewed declines against the U.S. dollar," wrote strategists at BNP Paribas.