Doubts over QE3 spark sharp dollar fall The dollar suffered a sharp fall on Thursday as nervousness over US jobs data prompted uncertainty over how long the Federal Reserve will continue to pump liquidity into the global financial system, leading investors to sell off the currency. The move followed a euro rally after the European Central Bank kept interest rates on hold at its monthly meeting and raised its forecasts for growth in the eurozone next year despite scaling back its expectations for 2013. This spurred further dollar selling in the world's largest financial market as the currency breached technical support levels. The dollar index fell nearly 2 per cent while the US currency at one point dipped 3 per cent against Japan's yen to move below Y96. "This is reminiscent of the 2008 crisis and well off the normal charts," said Bob Savage at FX Concepts, the New York-based hedge fund, referring to the volatility in the currency markets on Thursday. I don't think anyone in the central banking world wants currency or bond volatility right now and they're facing both. Jamie Dimon, JPMorgan chief executive, warned global markets would face increased volatility as central banks bring interest rates back to normal levels. "As we go back to normal, it's going to be scary, and it's going to be kind of volatile," he said at a Fortune Global Forum in Chengdu, China, Bloomberg reported. The unusual volatility came amid nervousness over US non-farm payrolls data due on Friday that were being closely watched by investors as a sign of how much longer the Fed was likely to continue its bond-buying programme to stimulate US growth. Analysts expect the US added 165,000 jobs in May. Jobs growth is crucial to when the US Federal Reserve decides to taper down its $85bn-a-month in asset purchases, after chairman Ben Bernanke signalled that it could do so at one of its next few meetings. Investors have bought the dollar in recent weeks in expectations that stronger figures on the economy would lead the Fed to taper its purchases of US Treasuries. This was expected to lead to a rise in bond yields. But investors have been cautious of holding on to dollar assets after figures earlier in the week showed an unexpected contraction in the US manufacturing sector. "This is a correction in the hunt for yield," said Sebastien Galy, a currency strategist with Société Générale in New York. The falls in the dollar have also helped to disrupt so-called "Abenomics" in Japan, where monetary stimulus measures by the Bank of Japan have helped the yen to weaken significantly this year. Buying Japanese equities in the belief a weaker currency will boost Japanese exporters" profits has been a popular trade among global investors. Adding to the turmoil were sharp rises in yields on southern European government debt, which move inversely with prices. Previously, Italian and Spanish bonds had been relatively immune to the sell-off triggered by talk of the Fed tapering its quantitative easing. Italian bond yields rose almost 23 basis points to 4.36 per cent, a two-month high. Their Spanish equivalents were up almost 25 basis points at 4.69 per cent. The ECB released fresh forecasts for eurozone growth on Thursday, predicting that the bloc's output will shrink 0.6 per cent this year, compared to 0.5 per cent previously, and grow 1.1 per cent next year. The ECB in March had forecast a contraction of between 0.9 per cent and 0.1 per cent this year. Mario Draghi, ECB president, said the changed forecasts reflected recent GDP data but stuck to his view that the economy would gradually recover later this year driven by exports, lower inflation and an accommodative monetary policy. Mr Draghi said a slight improvement in some survey data, offset by a continuing credit squeeze, did not justify further monetary policy action at this stage, adding that this was the consensus view of the governing council. There was some evidence of improvement in the underlying health of the US economy on Thursday when the Fed said that the average net worth of US households has recovered to $70,349 in the first quarter of 2013 - above the peak of 2007 - although that hides big wealth gains for richer households that own stocks and losses for poorer households on the value of their home. Additional reporting by Ralph Atkins in London and Michael Steen in Frankfurt.