The dollar rose against the euro on Friday as sentiment continued to reward higher US interest rates and relatively positive growth prospects over political instability and economic torpor in the euro zone. Against the resilient dollar, the euro slumped to $1.2220, down 0.4 percent from late Thursday and creeping back to eight-month lows of $1.2157 hit earlier this week. The euro is on track for its worst weekly performance since March.
Earlier in the session, traders said Asian investors were protecting an option position at $1.2250. But after the option expired at 10:00 am EDT (1400 GMT), the euro drifted steadily lower to a session low of $1.2205.
Sentiment for the euro remained so poor that the dollar shrugged off a weak US jobs report that showed payrolls grew by 78,000 in May, much lower than economists forecasts for a rise of 185,000. The jobless rate improved to 5.1 percent, compared with forecasts for 5.2 percent.
"Below $1.25, I think it has been strictly euro weakness," said Michael Woolfolk, senior currency strategist with Bank of New York.
"There were concerns developing about economic fundamentals in Europe - rising unemployment, falling growth - and political troubles in Germany, France and the Netherlands," he added.
Two US-based currency traders said there was market talk that US billionaire investor Warren Buffett might have been selling euros Friday. They said the speculation was a factor weighing on the euro.
Berkshire Hathaway Inc's Chief Financial Officer Marc Hamburg did not immediately return a call seeking comment.
Rumours had surfaced in mid-April that Buffett was unwinding bets against the dollar. The market then seized on the rumours and pushed the dollar to two-month highs against the euro.
At the company's weekend annual meeting about a month ago, Buffett said his bets against the dollar lost $310 million in the first quarter but he maintained his $21 billion bet against the US currency.
Against the yen the dollar traded at 107.60 yen, down about 0.6 percent from late Thursday.
The dollar rose 0.3 percent to 1.2550 Swiss francs. Sterling fell 0.2 percent to $1.8114.
Meanwhile in the options market, there was "sizable" interest to buy 500 million euros of 3-month euro/dollar puts with a strike price at $1.17, suggesting traders are continuing to favour strikes representing a downtrend in the euro, said Tom Rogers, senior currency analyst with IFR Forex Watch Banking and Brokerage.
"The incessant attempts to look for bottoms in the single currency are only driving prices lower as this hectic week heads toward a conclusion," he said.
The dollar's reaction was muted after the Institute for Supply Management's non-manufacturing report, issued in the mid-morning on Friday New York time, was 58.5 in May, below economists' forecasts for a 60.0 reading.
Higher US rates and yields increase the allure of dollar-denominated assets to global investors, while any diminishing of US rate hike prospects could sully the dollar's appeal.
The federal funds rate stands at 3 percent after the Federal Reserve's eight consecutive rises in the past year.
The European Central Bank kept rates at 2 percent on Thursday, rejecting calls for a cut to help reverse the economic slowdown in Europe.
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