Dollar falls on dour jobs report
Investors see huge job losses as sign that the Fed could cut rates to 0.5%.
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NEW YORK (CNNMoney.com) -- The dollar fell against the euro Friday after a dismal unemployment report increased the likelihood that the Federal Reserve would cut its key interest rate to 0.5% in order to bolster the economy.
Employers cut 240,000 jobs in October, according to the Labor Department, and the unemployment rate rose to 6.5%. The report sparked concern that the U.S. central bank may have to extend its efforts to keep the economy afloat.
"Everyone is just looking forward to a larger rate cut by the Federal Reserve," said Kathy Lien, director of currency research with Global Forex Trading in New York.
The Fed's next meeting on interest rates is scheduled for Dec. 16.
The dollar fell against the 15-nation euro, which rose 0.47 cents to $1.2763 from $1.2715 late Thursday. The dollar also lost ground against the British pound, which rose 0.49 cents to $1.5673 from $1.5626, but gained against the Japanese yen, rising ¥0.64 to ¥98.39.
Economy still sour: The jobless report was the latest in a long line of poor economic signals this week.
On Thursday, a Thomson Reuters monthly report on retail sales showed another huge decline in October, marking yet another sign that Americans are putting off non-essential purchases.
Another report earlier this week showed the nation's services sector contracted in October to its lowest level in at least 10 months.
However, even as currency investors anticipate another Fed rate cut, the dollar, which is often purchased by investors as a hedge against economic risk, will probably continue to gain strength as the global economy slows, according to Lien.
"In no way do I think the dollar rally is over," she said. "Everyone knows the global economy is headed for a recession, and that tougher timer are ahead."
Europe rate cuts: As the global economy slows, central banks of Europe will be able to cut interest rates much deeper than the Federal Reserve, meaning greater weakness is possible for the euro and pound.
The Fed's key interest rate is currently at 1%, and another deep cut could take it down to 0.5%, but the rates of the European Central Bank and the Bank of England are much higher.
On Thursday, the ECB cut its rate by a half-percentage point to 3.25%, while the BoE slashed its rate by 1.5 percentage points to 3%.
"They can keep cutting their rates just a little bit longer," said Nick Bennenbroek, chief currency strategist at Wells Fargo in New York.
Rate cuts by the ECB and BoE weakened the euro and pound against the dollar on Thursday. By late Thursday, the pound had lost 1.3% against the dollar, while the euro was down 2%. 
