LONDON - The dollar fell sharply against the euro here Friday as traders determined that a report on US job creation in February was unlikely to induce the Federal Reserve to raise interest rates more aggressively.
The single European currency in late-day deals was at 1.3244 dollars against 1.3108 late Thursday in New York.
The dollar was meanwhile trading at 104.45 yen after 105.26 on Thursday.
While official figures showed that the US economy created 262,000 jobs in February, beating expectations of 221,000, the performance was not seen as sufficiently robust to spark aggressive monetary policy action by the Fed.
"It was a decent report but not as strong as the market had been hoping for," said Neil Mackinnon, chief economist at ECU Group.
Analysts said there was little in the report to prompt the Fed to raise interest rates in a more aggressive manner than it has been doing, even though Fed officials have been sounding more confident about the economy in recent weeks.
As such, another quarter point hike in the key Fed funds rate to 2.75 percent is expected at the next rate-setting meeting on March 22.
While economists conceded that the job gains were solid, they also took note of a rise in the unemployment rate to 5.4 percent in February from 5.2 percent in January as well as benign wage pressures, with average hourly earnings remaining unchanged at 15.90 dollars in February.
"The data reveals a healthy picture of the jobs market, with payrolls growth finally living up to the strength of other labour market indicators ... and ought to leave the Fed on a continued path of gradual rates hikes over the coming months," said Mitul Kotecha, head of global currency research at CALYON.
Also weighing on the dollar was a deterioration in the closely-watched monthly University of Michigan survey into consumer sentiment.
The main index inched lower to 94.1 in late February from 94.2 earlier in the month and January's 95.5.
Elsewhere, analysts will be looking at China's National People's Congress, which begins its annual session that usually lasts 10 days, for any signs of possible changes in China's foreign exchange regime, which now keeps the yuan effectively pegged at 8.28 against the dollar.
Critics charge that China's peg keeps the yuan undervalued and therefore cheapens its exports, exacerbating both the US trade deficit and current-account deficit.
The deficit with China accounts for about a quarter of the overall US trade gap, which in turns makes up the majority of its current-account shortfall.
If the Chinese currency were allowed to float freely, investors would likely sell some of that surplus against the yuan.
But instead, the yuan's peg means more upward pressure on the euro and the yen, as both Europe and Japan also run trade surpluses with the United States.
The central People's Bank of China has been reviewing the yuan's peg but so far has refused to countenance a revaluation and has maintained that any policy adjustment will come at a pace chosen by Beijing.
The euro was changing hands at 1.3244 dollars against 1.3108 late on Thursday in New York, 138.36 yen (137.97), 0.6883 pounds (0.6873) and 1.5472 Swiss francs (1.5476).
The dollar stood at 104.45 yen (105.26) and 1.1680 Swiss francs (1.1808).
The pound was at 1.9243 dollars (1.9067), 201.02 yen (200.66) and 2.2476 Swiss francs (2.2516).
On the London Bullion Market, the price of an ounce of gold stood at 433.45 dollars against 430.20 dollars late on Thursday.
03/04/2005 18:06 GMT