The dollar dropped to a record low against the euro and a major currency basket on Friday, on persistent worries about credit and unreported losses at financial firms, which overshadowed a strong U.S. payrolls report.
U.S. stocks reversed early gains, led lower by the financial sector, and lifted the yen while keeping downward pressure on the dollar. The equities market has been hit hard in recent sessions by ongoing troubles at financial companies such as Citigroup and Merrill Lynch.
The focus of the market right now is on the financial sector and we are tracking the stock market, said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.
He added that the positive impact from U.S. payrolls has completely faded and the market has been spooked by all sorts of rumors about possible writedowns at big banks.
The market always views euro/dollar as a 'buy on dips' regardless of the data.
The euro surged to an all-time high at $1.4525, according to Reuters data. It last traded at $1.4490, up 0.5 percent on the day.
In London, shares in Barclays fell sharply on market talk of funding worries and concern Britain's third-largest bank was telling analysts to trim profit forecasts.
Given increasing problems in the financial sector, the U.S. interest rate futures market has priced an 84 percent chance the Fed will lower benchmark rates again in December, up from as low as 58 percent following the U.S. employment report.
The report showed employers added 166,000 new jobs last month, up from a revised 96,000 in September, and it initially
encouraged investors to wade back into risky carry trades.
In carry trades, investors sell the low-yielding yen to buy assets with higher returns such as the Australian and New Zealand dollars.
The jobs data for October suggested the U.S. economy was far more resilient than many initially thought after a credit crunch hit the financial sector in the summer. That enhanced investors' risk appetite and briefly boosted U.S. stocks.
The euro was up 0.7 percent at 166.26. The euro/yen pair is often viewed as a good barometer for carry trades.
The dollar index, which charts the greenback's progress against a basket of six major currencies, fell as low as 76.242, the lowest in its more than 30-year history.
The dollar was up 0.2 percent against the yen at 114.70 yen, clinging to small gains.
Analysts said the U.S. jobs report's details were not as positive as the headline figure suggested. In particular, they cited softness in retail and manufacturing employment, including earnings data.
The softer earnings data plays to the core FOMC view that inflation is not a major threat even with a low unemployment rate, said Alan Ruskin, chief market strategist at RBS Greenwich Capital in Greenwich, Connecticut.
(Additional reporting by Steven C. Johnson)