Dollar drops against rivals after jobs report

An earlier version of this story had incorrect weekly performance information for the dollar index.

SAN FRANCISCO (MarketWatch) � The U.S. dollar dropped against other major currencies on Friday after government data triggered worries about the health of the U.S. labor market and the economic recovery.

The dollar index DXY , which tracks the performance of the greenback against a basket of other major currencies, fell to 79.840 in recent trade. It was at 80.084 before the jobs data and at 80.101 late Thursday.

The benchmark index traded 1.1% higher than a week ago. It�s posted declines over the previous three weeks.

Click to Play U.S. adds 120,000 jobs in March

The U.S. economy added 120,000 jobs last month, less than expected and an indication that momentum could be slowing.

The decline for the dollar came after the Labor Department reported that the U.S. economy added 120,000 jobs in March. In contrast, economists had expected a gain of 210,000 jobs. Read more about the jobs report.

�With equity markets closed on Friday, the March nonfarm payrolls report offered a unique opportunity for volatility amid otherwise quiet trading conditions,� said Christopher Vecchio, currency analyst at DailyFX.

�Indeed, volatility was afoot following the disappointing 120,000 print, which was exactly half of the official government reading for February at 240,000,� he said.

Beyond the headline reading, the jobless rate slipped to 8.2% from 8.3% �as discouraged workers continued to leave the labor force, but the recent development may do little to bring about another large-scale asset purchase program, as Fed officials see the recovery gathering pace throughout the year,� said DailyFX currency analyst David Song.

�We should see fundamentals playing an increased role in driving the USD as central bank officials see scope to start normalizing monetary policy towards the end of the year,� he said. And �As the [Federal Reserve Open Market Committee] looks to conclude its easing cycle in 2012, we will maintain a bullish outlook for the greenback.�

Against the Japanese yen, which tends to be seen as a safe-haven currency, the dollar USDJPY �dropped 0.9% to trade at 81.55 yen. Earlier, it hit a low of �81.29, according to data from FactSet Research. A week ago, it traded at �82.30.

The euro EURUSD �gained 0.3% to $1.3092 after rising as high as $1.3112, according to FactSet. It traded at $1.332 last Friday.

�We really didn�t have much coming out of Europe in light of the holiday, but the single currency is lagging behind its major counterparts as heightening financing costs across the periphery countries raise the threat for contagion,� said Song.

The British pound GBPUSD �added 0.3% to $1.5879. A week ago, it was at $1.598.

Most markets, including stocks and commodities, were closed for Good Friday. The bond market had an abbreviated trading session, with Treasury yields falling sharply. Read more about Treasurys.

U.S. stock futures fell sharply after the jobs data. Read more about the reaction in stock futures.

On tap next week are first quarter earnings in the U.S. as well as Chinese GDP data, and �if the markets back off their stimulus expectations, we may finally see a natural correction in sentiment and thereby a revived dollar safe-haven role,� said John Kicklighter, DailyFX currency strategist.