NEW YORK (Reuters) - The dollar fell against the euro and a basket of major currencies on Friday after data showed steep U.S. job losses in the last three months, fanning fears about a much deeper slowdown for the world's largest economy.
October's 240,000 decline in non-farm payrolls was more than market expectations, but it was the September drop in jobs -- the largest in nearly seven years -- that shocked the currency market.
In total over the three months through October, 651,000 jobs have been slashed from payrolls, and 1.2 million so far this year.
"The report shows the labor market continued to deteriorate at the start of the fourth quarter and we have to keep in mind that it doesn't yet reflect much of the job losses on Wall Street," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon.
"The dollar is somewhat weaker this morning but I wouldn't be surprised if it turns around as the weekend starts."
Woolfolk added that the U.S. data over the last few weeks has raised the market's aversion to risk, which has helped capital flows back to the U.S. dollar.
In early New York trading, the euro was up 0.8 percent against the dollar at $1.2795. Against the yen, the dollar slipped 0.4 percent to 97.39 yen.
The ICE Futures' dollar index .DXY, a measure of the greenback's value against six major currencies, fell 0.4 percent to 85.565.
Following the report, the interest rate futures market has fully priced a quarter-point cut in the federal funds rate from the Federal Reserve in December, to 0.75 percent, and implied prospects for a half-point cut are at 64 percent against 58 percent late on Thursday.
Still, analysts are convinced the dollar will continue rallying despite this setback on the employment front and increased expectations for further rate easing.
Alan Ruskin, chief international strategist at RBS Global Banking and Markets in Greenwich, Connecticut said the jobs data sends a "significant negative message for risk," which should help the dollar over the coming months.
"The dollar is in this unusual spot of responding more to data message for risk appetite than for Fed policy, now that dollar rates are approaching zero," Ruskin said.
(Additional reporting by Vivianne Rodrigues; Editing by Andrea Ricci)
