Forex Dollar:- Jumps vs euro biggest daily gain in 2 months

The U.S. dollar jumped against the euro on Friday, posting its biggest daily gain in almost two months, after traders said the greenback's slump earlier this week may have been overdone.

The dollar also gained ground after the U.S. government said it will provide loans to Detroit carmakers crippled by the economic downturn. The Bank of Japan's interest rate cut to nearly zero also lent support to the greenback.

"We've seen an extraordinary amount of volatility over the last few sessions and part of that is due to the fact that it's year-end and month-end for a lot of banks and institutions," said Steven Butler, director of foreign exchange trading at Scotia Capital in Toronto. What this ECB move did was, for all intents and purposes, it knocked down the euro's interest rate advantage versus the U.S. So it made it less attractive to hold euros," said Ronald Simpson, managing director of global currency analysis at Action Economics, in Tampa, Florida.

In late afternoon trading in New York, the euro was down 2.8 percent at $1.3887 after hitting a low of $1.3826, according to Reuters data. The euro hit $1.4720 on electronic trading platform EBS on Thursday, its strongest since late September.

Despite Friday's pullback, the euro is on track post a weekly gain of more than 3 percent against the dollar.

The euro fell 3.1 percent to 123.79 yen .

Analysts said once the year-end flows are out of the way and investors return to their allocation for the coming year, the worsening economic backdrop in the eurozone should come back to weigh on the region's currency.

"The European Central Bank is not done lowering rates yet," said Greg Salvaggio, a vice president for trading at Tempus Consulting in Washington D.C. "That in itself is a negative for the currency."

Salvaggio added he expects the euro to trade in a range of $1.35-$1.37 until the end of the year.