By Atiya Hussain
NEW YORK, July 6 - The dollar surged to eight-month highs against the euro, three-month highs against the yen and record highs against a slew of other currencies before getting bogged down by weak U.S. jobs data on Friday.
The greenback gave back some of its steep gains against Europe's single currency after U.S. non-farm payrolls fell more than expected in June, but dealers said the dollar's retreat would only be temporary.
"It's a mild negative," said Alex Beuzelin, foreign exchange analyst at Ruesch International. "As far as the dollar is concerned, it may serve as a catalyst for a correction, but overall I don't think it's going to usher in a sustained recovery in euro."
Non-farm payrolls fell 114,000, exceeding the 44,000 drop the market had expected, but May payrolls were revised up 8,000. The jobless rate inched up to 4.5 percent from 4.4 percent in May.
The euro climbed 1/4 cent on the data, hitting fresh session highs above 84.20 cents but quickly eased back around 84 cents , up 0.25 percent from the previous U.S. close and half a cent above overnight eight-month lows near 83.50 cents.
But dealers said the data would not shake the market's growing confidence that the United States -- unlike the euro zone and Japan -- has weathered the worst of a steep economic slowdown.
"It doesn't change the perception that the U.S. economy is working through the slowdown and that it will continue working it out for the rest of the year," said Bob Lynch, currency strategist at BNP Paribas. "I really don't think it is going to create a sustained problem for the dollar; it may weaken it temporarily, especially after the strong gains we have seen," Lynch said.
On Friday, the dollar also hit 15-year highs against a trade-weighted basket of currencies <=USD> and with emerging markets spooked by problems in Argentina and Brazil, investors looking for a safe-haven lifted the dollar about 4 percent against emerging currencies such as the Polish zloty and the Hungarian forint .
The greenback also surged to record highs against the South African rand and the Brazilian real and climbed to eight-month highs against the Swiss franc .
ECB SEEN LAGGING
Traders said concern that the European Central Bank's foot-dragging on interest rates was jeopardizing euro zone growth would drive the single currency toward record lows.
"There is no real reason to see a turnaround in the fortunes of the euro, with continued uncertainty over policy in Europe and evidence the situation in the U.S. has troughed," said Derek Halpenny, currency economist at Bank of Tokyo-Mitsubishi in London.
Despite growing evidence of slowing growth in the euro zone, the ECB left rates unchanged on Thursday. The central bank has cut interest rates only once this year, in contrast to the Federal Reserve, which has cut U.S. rates six times this year.
The euro also tumbled to seven-month lows against sterling, under 59.50 pence , before finding a reprieve from worse-than-expected 0.9 percent fall in British industrial and manufacturing output in May.
Lingering wariness of intervention, after a false alarm on Thursday, lent the euro some support, but dealers noted ECB President Wim Duisenberg had not sounded especially concerned about the euro on Thursday, merely saying it had been stable.
ECB Vice President Christian Noyer said contagion from the U.S. slowdown into Europe was faster than expected. But he also said the current euro exchange rate was "ridiculous."
YEN STILL WEIGHED BY KURODA
Analysts said the Japanese authorities have all but told the market to sell the yen because the country's fundamentals are so grim.
Japan's top financial diplomat Haruhiko Kuroda indicated earlier this week his ministry would not stand in the way of a weaker yen as long as it was in line with fundamentals. Jiji news agency reported on Friday that Koichi Kato, a senior ruling party member, supported a weaker yen to kick-start the economy.
But Japan's Vice Economics Minister Eiji Kawade said of the yen's recent decline that "our position is unchanged that extreme volatility is undesirable."
The dollar surged past 126 yen for the first time in 3 months, before easing back around 125.75 yen in early U.S. trading, up a hair from the previous U.S. close.
The beleaguered euro also managed to push up near 106 yen , before sliding back around 105.65 yen, still up more than 0.50 percent on the day.
SWEDES HIKE RATES, DANES CUT
Elsewhere, the Swedish crown hit record lows against the dollar and weakened to its worst level in three days against the euro as the market tested the Riksbank's desire to intervene to support the crown.
The Riksbank raised interest rates by 25 basis points to 4.25 percent on Friday, emphasizing it was taking its 2 percent inflation target with the utmost seriousness.
The Riksbank bought crowns in the foreign exchange markets last month after the Swedish crown last hit record lows against the dollar and also hit 2-1/2-year lows against the euro. The Danish central bank, meanwhile, cut its key two-week lending rates by five basis points to 4.95 percent on Friday, citing the strength of the crown. The Danish crown hit eight-month highs against the euro ahead of the rate decision.