LONDON (MarketWatch) - The dollar was mixed versus major currencies Friday ahead of a potentially brutal plunge in November U.S. nonfarm payrolls.
The dollar index , which tracks the performance of the dollar against a trade-weighted basket of six major currencies, rose to 86.834, up from 86.533 in North American activity late Thursday.
The euro slumped to $1.2708, down from $1.2786, moving to a new low for the day after Germany's economics ministry reported an unexpectedly large drop in October manufacturing orders.
The British pound traded at $1.4697, up from $1.4684.
The dollar was little changed versus the Japanese currency, changing hands at 92.25 yen versus 92.22 yen Thursday.
U.S. nonfarm payrolls are forecast to fall by 350,000 jobs, according to a MarketWatch survey of economists. That would mark the largest fall since a 431,000 decline in May 1980, and many economists now see potential for a loss of around 400,000 jobs. See full story.
"Job losses in the vicinity of 300,000 are probably priced in for November. What this means is that a number close to or in excess of 400,000 may be required to trigger knee jerk dollar selling, even as ... yield spreads (between U.S. and other G-10 government bonds) continue to narrow," said strategists at Lloyds TSB.
The dollar came under pressure Thursday, sinking after the Bank of England and the European Central Bank made historic cuts in key interest rates.
The Bank of England slashed its key rate by a full percentage point to 2% -- matching the lowest benchmark rate since the central bank's founding in 1694.
The ECB made the largest cut in its 10-year history, dropping its key rate by 75 basis points, or three-quarters of a percentage point, to 2.5%. See full story.
Still, "the post-rate decision market reaction was lukewarm; neither the BOE nor the ECB surpassed the most aggressive of market rate expectations and so the euro and sterling rallied modestly," said Stephen Gallo, head of market analysis at Schneider Foreign Exchange.
The pound sank to a six-and-a-half year low versus the dollar ahead of the rate decision and hit an all-time low versus the euro before rebounding.
Remarks by ECB President Jean-Claude Trichet in his news conference following Thursday's decision were ambiguous on prospects for a January rate cut, although most economists have penciled in further, aggressive easing in the months ahead.
"As we all know, Trichet can be pretty darn clear when he wants to - but not yesterday," Gallo said. "We think that there are some big splits among ECB policymakers, and this could easily hinder further policy easing" in the first quarter of 2009.
But delay would be postponing the inevitable, he added.
"The longer the ECB takes, the more likely it is the euro will be the main loser during the second half of the year," Gallo said.
German manufacturing orders saw a seasonally-adjusted 6.1% monthly fall in October, according to news reports. Economists were looking for a modest rise of 0.4% after a downwardly revised September plunge of 8.3%.
Strategists at BNP Paribas said euro and sterling could be in for some renewed pressure amid the inability of equity markets to move higher.
Weaker equities and increased risk aversion have boosted the dollar and the Japanese yen.
"With equity markets failing to gain any support from the current monetary policy easing, we now expect the euro, and particularly sterling, to come under renewed downward pressure, while the U.S. dollar is set to extend its broad based recovery over the medium term," they wrote.
Strategists at HBOS said an adverse reaction by equities to Friday's U.S. nonfarm payrolls data could put a vulnerable pound back on the defensive.
"Price action in British pound/U.S. dollar today is likely to be dominated by the outcome of the US nonfarm payroll report - a rise in risk aversion would once again leave [the pound] under pressure," they wrote.
