The dollar fell sharply on Friday as unexpectedly week reports on US jobs, factory orders and durable goods bolstered the market's view that the Federal Reserve can raise interest rates at a measured pace.
Most currency strategists had looked for the Fed to be more aggressive in tightening monetary policy as that would enhance the lure of US dollar-based assets for global investors.
Employment figures are regarded by the market as a key gauge for the US central bank to judge whether the economy has picked up enough strength to warrant raising rates.
Factory orders in May fell less than expected, but the report still reflected an economy that was not as strong as in the first few months of the year.
"All the economic reports today and yesterday are pointing to an economy that was moving at an accelerated pace in the first and second quarters, but now seems to be correcting," said Joe Francomano, vice president of foreign exchange at Erste Bank in New York.
"The Fed's decision on Wednesday to raise rates by a quarter of a percent, showing guarded optimism about the US economy, was therefore right on the mark. The dollar will be on the back foot for the rest of the session," he added.
By late afternoon trade in New York, the euro traded at $1.2314, up 1.3 percent, after touching 3-1/2-week highs at $1.2327, according to Reuters data. The dollar fell to 108.14 Japanese yen, before steadying at 108.35 yen.
The dollar also dropped more than 1.4 percent against the Swiss franc to hit a 4-1/2-month low at 1.2299 francs before firming back to 1.2322 francs.
Sterling rose 0.8 percent to $1.8352 while the Australian dollar rose over 1.3 percent to a one-month high at US$0.7138.
With much weaker than expected June non-farm employment data and soft May factory orders and durable goods, investors are reassessing their bets on currencies, traders said.
"There is no data coming out next week so we will further digest the not-as-good-as-expected non-farm payrolls.
We will test at least in the euro and sterling the upside of the range and see if we can get anywhere with it," said Grant Wilson, vice president of foreign exchange at Mellon Bank in Pittsburgh.
The dollar plunged across the board early in New York after the Labour Department reported employers added 112,000 jobs in June, far below market forecasts for a 250,000 increase.
May's payrolls were also revised down to 235,000 from 248,000. The jobless rate was steady in June at 5.6 percent.
"Undoubtedly it's a dollar-negative report. This pace of job creation shows there is still slack in the labour markets," said Alex Beuzelin, foreign exchange market analyst with Ruesch International in Washington, D.C.
After the Fed on Wednesday hiked its key interest rate a quarter of a percentage point to 1.25 percent, its first increase in four years, the market's focus shifted to the pace of future rate hikes.
The Fed repeated it would likely be "measured" in raising rates, though the market was still mulling that wording.
The Commerce Department said factory orders dipped 0.3 percent in May, after falling a revised 1.1 percent in April. The median forecast was for a 0.6 percent drop.
Durable goods orders fell 1.8 percent in May, somewhat deeper than the 1.6 percent decline reported last week.
US bond markets are set to shut early Friday in observance of the US Independence Day on Monday and analysts say worries about attacks on US soil over the long weekend could depress the dollar.
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