The single currency strengthened briefly to 1.4956 against the dollar after the release of U.S. non-farm payrolls data which fell by 17,000 last month with an upwardly revised 82,000 gain in December. The U.S. labor market contracted in January for the first time since August 2003. The jobless rate declined to 4.9% from 5% in December.

However, profit-taking offers near the record high at 1.4968 pressured price and euro subsequently tumbled to 1.4786 on a private report showed manufacturing expanded in January. The Institute for Supply Management said its January manufacturing index was 50.7, the level above 50 reflected expansion, injecting some doubt into the argument that a recession is looming.

The European Central Bank continued to dwell on inflation and has not hinted at plans to slash benchmark interest rates, which at 4% stand a full percentage point above U.S. rates. However, interest-rate futures showed investors and traders expected the European Central Bank to lower interest rate in the second half of this year. The implied yield on the three-month Euribor contracts expiring in July was 3.925%. That rate averaged 18 basis points more than the ECB's benchmark from 1999 until August 2007.

The British pound tumbled from 1.9942 to 1.9646 and euro rallied versus sterling from 0.7459 to 0.7544 on speculation the Bank of England will cut its main rate of 5.5% at its Feb. 7 meeting to shore up the British economy.

U.S. currency also rebounded versus the Japanese yen from 105.76 to 106.74 on dollar’s broad-based strength due to the rally in U.S. stocks on the M&A news as Microsoft proposes purchase of The greenback weakened to fresh record low of 1.0729 versus the Swiss franc before rebounding strongly on the renewed cross selling in chf. Eur/chf rose sharply from 1.6107 to 1.6129.

Next week will see the release of eurozone PPI, revised U.S. durable goods and factory orders on Monday; German, eurzone and U.K. PMI service respectively, eurozone retail sales and U.S. ISM non-manufacturing on Tuesday; U.K. Nationwide consumer confidence, Japan’s leading indicators, U.S. productivity and U.K. leading indicators on Wednesday; U.K. industrial and manufacturing production, German factory orders, U.S. jobless claims and pending home sales; Japan’s machine orders and economic watch, German trade balance, current accounts and industrial production and U.S. wholesale inventories.

Bank of England and European Central Bank will announce their rate decisions on Thursday and economists expect BOE to cut interest rates by 25 basis points to 5.25% from 5.50% whilst ECB to keep rate steady at 4.00%.