Dollar languishes near 8-week low ahead of payroll test By Reuters

By Kevin Buckland

TOKYO (Reuters) – The dollar remained near an eight-week low on Friday, ahead of a crucial U.S. jobs report that could provide clues on the timing of interest rate cuts interest of the Federal Reserve.

The euro held onto its gains overnight after the European Central Bank cut rates in a well-heralded move, but gave little hint of future easing as persistent inflation clouds the outlook .

The, which tracks the currency against the euro and five other major rivals, was little changed at 104.09 at 0453 GMT, not far from this week's low of 103.99, the first time it has has fallen below 104 since April 9.

For the week, the index was on track for a 0.54% decline following a series of weaker macroeconomic data that prompted investors to put two quarter-point rate cuts back on the table. the Fed for this year.

That led traders to position for a more subdued nonfarm payrolls report later in the day, with the possibility that employment growth could fall short of the 185,000 median economists forecast.

The Federal Open Market Committee is not expected to make any changes at its policy meeting next week, but markets are currently pricing in a 50 basis point cut by the end of December, with the first cut most likely coming in September .

“We expect the overall message from the non-farm payrolls report to be positive, even if it is in decline,” wrote Joseph Capurso, head of international economics at the Commonwealth Bank of Australia (OTC: ), in a customer note.

“We wouldn't characterize the U.S. labor market as weak — strong, rather than hot, would be more accurate,” he added. “Therefore, market pricing for the first FOMC rate cut in September may be pushed back, supporting an uptick in the dollar.”

The euro was little changed at $1.0894, after a gain of around 0.2% in the previous session, when the ECB cut rates by a quarter point to launch its easing cycle. However, the IMF staff also raised its inflation forecast, which is now expected to remain above the central bank's 2% target until the end of next year.

“The fact of the day is that the ECB was more hawkish than the mainstream narrative,” said Gavin Friend, senior market strategist at National Australia Bank (OTC:).

The President of the ECB, Christine Lagarde, “has been very reluctant to give indications on further easing”, Friend added.

Sterling, meanwhile, held steady at $1.27905 on Friday, not far from the week's high of $1.2828, the highest level since mid-March.

The yen was also little changed on the day, at 155.60 per dollar, and remained on track for a gain of about 1% for the week.

Like the Fed, the Bank of Japan will decide its policy next week and a consensus is emerging in the market in favor of an imminent reduction in its monthly bond purchases.

Despite its recent strength, the yen remains near a 34-year low above 160 per dollar reached in late April, prompting Japanese authorities to spend some 9.8 trillion yen ($62.9 billion ) to intervene in the foreign exchange market to support it.

The government and the BoJ fear that rising import costs could derail a hoped-for cycle of moderate inflation and steady wage increases.

Japanese Finance Minister Shunichi Suzuki reiterated his willingness to take action against excessive currency fluctuations, but added that restraint was also required.

“Foreign exchange interventions must be made taking into account their necessity and effectiveness,” he said, and “should be carried out in a moderate manner.”

($1 = 155.7200 yen)