NEW YORK: The dollar dropped from three-week peaks on Friday in choppy trading after data showed the US services sector slumped in December, negating gains posted after a report showing higher-than-expected nonfarm payrolls last month.

The Institute for Supply Management (ISM) said its non-manufacturing index fell to 50.6 last month, the lowest reading since May, from 52.7 in November. The services industry accounts for more than two-thirds of the economy. Economists polled by Reuters had forecast the index little changed at 52.6.

More importantly, the ISM’s measure of services sector employment plunged to 43.3 last month, the lowest since July 2020 when the economy was reeling from the first wave of the pandemic. The index was at 50.7 in November.

“The plunge in the ISM services index to a 7-month low in December suggests, at face value, that the economy is sliding into recession,” wrote Andrew Hunter, deputy chief US economist at Capital Economics, in an emailed note after the data.

“But the poor relationship between the surveys and the hard economic data in recent times suggests we should take this latest reading with a pinch of salt.

The dollar index fell 0.4% to 102.0 after hitting 103.10 following the stronger-than-expected jobs report. That was the highest since mid-December.

On the week however, the dollar gained 0.6%, on pace for its best weekly rise since early December.

Earlier in the session, the dollar got a bounce after data showed the US economy generated 216,000 new jobs in December, exceeding the consensus forecast of 170,000. The unemployment rate was steady from November at 3.7%, compared with expectations of a rise to 3.8%, while average earnings rose 0.4% on a monthly basis, against forecasts of a 0.3% gain.

Some analysts said the report suggested that the Federal Reserve would probably be in no rush to cut interest rates over the next few months.

US rate futures have priced in about five rate cuts of 25 basis points (bps) each for 2024, with the year-end fed funds rate expected at roughly 4% compared with the current level of 5.25%, according to LSEG’s rate probability app. Early this week, the market had factored in six rate declines.

Post-ISM data, rate futures traders have raised easing bets at the March meeting to around 76%, from about 68% to 70% over the last week.

The market also shrugged off data showing US factory orders increased more than expected in November, rising 2.6% after declining 3.4% in October.

In other currencies, the dollar slid 0.4% against the yen to 144.01. It rose as high as 145.98 yen, a three-week peak after the payrolls data. On the week, the greenback advanced 2.2% versus the Japanese currency, on track for its best weekly performance since last August.

The euro, on the other hand, gained 0.4% versus the dollar to $1.0982. Europe’s common currency fell 0.5% on the week, its largest weekly drop since early December and snapping a run of three weeks of increases.

Inflation across the 20-nation bloc jumped to 2.9% in December from 2.4% in November, just shy of expectations for a 3.0% reading.