The dollar lost more ground Friday after a disappointing U.S. jobs report boosted market expectations that the Federal Reserve is closer to taking more action to stimulate the economy.
The prospect of more dollars flowing into the system helped push stock markets higher but piled pressure on the dollar, which has fallen to its lowest level in nine months against a broad basket of currencies.
The dollar also sank 0.3 percent to a near 15-year low of 82.04 yen and below the level that forced the Bank of Japan to intervene last month to rein in the export-sapping appreciation of the yen. In late trading in New York, the dollar was trading at 82.07 yen versus 82.37 yen late Thursday.
In other trading, the euro edged down to $1.3912 from $1.3930 and the British pound rose to $1.5949 from $1.5878. The Swiss franc strengthened to 0.9634 versus 0.9667 and the Canadian dollar was also stronger at 1.0133 versus 1.0183.
Traders resumed selling dollars after a report showed that overall nonfarm payrolls in the U.S. fell 95,000 in September, despite a 64,000 increase in private sector jobs. Analysts had been expecting the private sector to add 75,000 jobs.
Investors now think it's likely that the Fed will resume buying bonds to spur spending, a process known as quantitative easing. The most likely date is thought to be Nov. 3 at the conclusion of the Fed's next rate-setting meeting.
"This is a soft jobs report, and the gain in private sector employment is still not strong enough to absorb entrants coming into the work force where you need jobs growth of at least 150,000 per month," said Neil MacKinnon, global macro strategist at VTB Capital.
But some traders aren't expecting the Fed to make any extreme moves. "We think that the markets have gotten ahead of themselves on the prospect for quantitative easing," said Robert Sinche, the global head of foreign exchange strategy at Royal Bank of Scotland in Stamford, Conn.
The volatility in the currency markets, along with the danger that some countries are seemingly trying to weaken their currencies for economic advantage, will form the backdrop of discussions taking place among finance ministers gathering at the annual meetings of the International Monetary Fund and the World Bank Group in Washington, D.C.
Analysts remain skeptical that anything dramatic will materialize beyond continued criticism of China's currency policy. China effectively keeps its currency artificially low against the dollar in order to boost exports, which in the process is blamed for the imbalances in the global economy.
On Thursday, European Central Bank president Jean-Claude Trichet appeared to give voice to some concerns about the recent ascent in the value of the euro, when he said that currency rates should reflect the fundamentals and that excessive volatility risked damaging economic growth.
"It is difficult to foresee attendees formulating anything more meaningful than the platitudes crafted by their numerous predecessors pertaining to the desire for stability and international cooperation," said Neil Mellor, a currency strategist at Bank of New York Mellon.
However, Mellor said it's not inconceivable that a general currency accord will emerge, in the style of the Plaza Accord of September, 1985 at the eponymous hotel in New York when the finance ministers of the world's then five largest economies agreed to intervene in the markets to weaken the dollar, particularly against the yen. That was followed two years later by the Louvre Accord in Paris, when a plan was hatched to stabilize the U.S. currency.
Most likely, according to Mellor, is that the European finance ministers will voice increasing frustration against the Chinese monetary authorities. In effect, the euro bears the brunt of the dollar's depreciation in the currency markets because the yuan is effectively pegged to the U.S. currency.
Financier George Soros, perhaps the world's best known currency trader, wrote in the Financial Times Friday that a period of "great turbulence and disruptions" can be avoided if China can "initiate a period of international cooperation" by offering more flexibility with regard to the yuan.
"If it fails to live up to the responsibilities of leadership, the global currency system is liable to break down and take the global economy with it," said Soros. "Either way, the Chinese trade surplus is bound to shrink but it would be much better for China if that happened as a result of rising living standards rather than a global economic decline."
The Japanese have already backed up their concerns with money, intervening in the markets in mid-September to weaken the yen. Though the yen has since hit fresh 15-year highs against the dollar, many analysts think that it could have been even stronger, near all-time highs, if the threat of intervention was not there.
Analysts said the Japanese authorities will be back in the markets buying dollars to weaken the yen. After all, previous interventions stretched out for a while.
"I would be surprised to see the Bank of Japan simply let the dollar slide through the all-time low at 79.75 yen without at least a token fight," said Alan Ruskin, a currency strategist at Deutsche Bank.
Pylas reported from London.