Dollar nears 8-week low as payroll test looms

By Kevin Buckland

TOKYO (Reuters) – The dollar remained near an eight-week low on Friday, ahead of a crucial U.S. jobs report that is expected to 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 U.S. dollar index, which tracks the currency against the euro and five other major rivals, was little changed at 104.13 early in the Asian day, not far from this week's low of 103.99, the first time it has fallen below 104 since April 9.

For the week, the index was on track for a 0.5% decline following a series of weaker macroeconomic data that put two quarter-point rate cuts from the Fed back on the table this year. 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 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 in September.

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

“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 held steady at $1.0889, following a gain of around 0.2% in the previous session, when the ECB cut rates by a quarter point to kick off 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.

Meanwhile, the British pound was also little changed at $1.2792, sitting not far from the week's high of $1.2828, the highest level since mid-March.

The dollar appreciated slightly to 155.85 yen, but remained on track for a loss of nearly 1% for the week.

The Bank of Japan will also decide on policy next week, with market consensus building for an imminent reduction in the monetary authority's monthly purchases of government bonds.

(Reporting by Kevin Buckland; editing by Lincoln Feast.)