The Dollar dropped on Friday after a December report showing the weakest jobs growth since August 2003. FX market was hit by fears of a recession and an increased expectation of an aggressive rate cut by the Federal Reserve this end of January.

The jobless rate rose to 5%, the highest since November 2005. This was the 3rd key US economic indicator last week that was worse than the most pessimistic forecast.

EurUsd traded at 1.4743 on Friday, unchanged but below the five-week high of 1.4825 reached in the wake of the US payrolls data. UsdJpy was down 0.84% at 108.60 rebounding from losses incurred after the jobs report 107.97 low. UsdChf fell 0.28% to 1.1084 after hitting 1.1019 Friday low. GbpUsd was unchanged to 1.9736.

Interest rate futures reflected a more than 66% chance that the Fed will lower its benchmark interest rate by 50 basis points later this month. Such a cut would bring the fed funds rate to 3.75%, below all but two of the 10 most liquid currencies. A 25 basis point cut is believed a certainty.

The dollar dropped sharply after data showed the Institute for Supply Management's non-manufacturing index registered growth in December and was higher than expected. That contrasted with the manufacturing survey earlier last week, which reflected contraction. However, the Dollar remained down on Friday, with the latest ISM data not enough to turn the tide of sentiment against it. The slowing US economy generated 18,000 jobs in December, with private sector employment contracting for the first time since July 2003.

In contrast to bets for rate cuts in the United States, the European Central Bank appeared more concerned about rising inflation than easing growth, suggesting that rates will likely be left on hold at 4% for some time to come, especially after last week data showed euro zone inflation well above the ECB's target in December.

Investors grew skeptical about global growth prospects with the US economy possibly headed to recession. In profit taking, they have diminished carry trades and investments at risk in their portfolios.

Last week, the Dollar has fallen 3.25% against the Yen last week, the largest weekly decline in almost two months and the Euro was down 3.17% against the Yen, the biggest weekly fall since mid August. Sterling was also hit against the Yen posting a 4.4% weekly drop, the highest since mid August.