The dollar fell to the lowest level in three weeks on Friday after the U.S. jobs report came in far below expectations and cast doubt on whether the Federal Reserve would raise U.S. interest rates soon.
The dollar index, which measures the greenback against a basket of major currencies, fell as much as 1.5 percent after the release of the data, on track for its largest one-day percentage loss in four months.
Nonfarm payrolls increased by only 38,000 jobs last month, the smallest gain since September 2010, the Labor Department said on Friday, with the goods producing sector shedding 36,000 positions.
"It's a fairly disastrous payroll report," said Gennadiy Goldberg, interest rate strategist at TD Securities in New York. "This puts the nail in the June coffin, June's definitely off the table. The Fed will definitely want to see a cleaner read on payrolls before taking rates higher again. This will weigh on July odds, and odds across the curve ... It's weak across the board, and very messy."
Fed funds futures rates showed traders see only a 4 percent chance that the central bank will raise interest rates at its June 14-15 policy meeting, down from a 21 percent chance on Thursday, according to CME Group's FedWatch tool.
The dollar index .DXY was last down 1.4 percent to 94.249, after previously falling as low as 94.107, its lowest since May 13. The fall puts the index on track for the biggest one-day percentage drop since Feb. 3.
The market reaction to the jobs report was "a bit overdone," said Kathy Jones, chief fixed income strategist at Charles Schwab, because of overly optimistic expectations.
"People were positioned for the idea that this was going to be a good enough number for the Fed to move forward in June, and now they have to adjust to the reality that this probably isn't and maybe push it forward to the possibility of July instead," she said.
Futures rates showed investors had reduced the probability of a rate increase in July to 38 percent, down from nearly 60 percent on Thursday, according to FedWatch.
(Reporting by Dion Rabouin; Editing by Lisa Von Ahn and Frances Kerry)
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