TOKYO: The dollar hovered close to an eight-week low on Friday, ahead of a crucial U.S. jobs report that should provide clues on the timing of Federal Reserve interest rate cuts.
The euro held on to overnight gains after the European Central Bank reduced rates in a well-telegraphed move, but offered few hints about future easing as lingering 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 had broken below 104 since April 9.
For the week, the index was on track for a 0.5 per cent slide following a run of weaker macro data that put two quarter-point Fed rate cuts back on the table for this year.
That has seen traders positioned for a softer non-farm payrolls report later in the day, with the possibility that jobs growth comes in below the 185,000 median forecast of economists.
The Federal Open Market Committee is not expected to make any change at its gathering next week, but markets currently price in 50 basis points of cuts by end-December, with the first cut most likely coming in September.
"We expect the overall message from the non-farm payrolls report to be one of strength, albeit ebbing," Joseph Capurso, head of international economics at Commonwealth Bank of Australia, wrote in a client note.
"We would not characterise the U.S. labour market as weak - strong, rather than white hot, would be more accurate," he added. "Consequently, market pricing for the FOMC's first rate cut in September may be pushed out, supporting a modest increase in the USD."
The euro was flat at US$1.0889, after a gain of about 0.2 per cent in the previous session, when the ECB lowered rates by a quarter point to kick off its easing cycle. However, staff also raised their forecasts for inflation, which is now expected to stay above the central bank's 2 per cent target until late next year.
Meanwhile, sterling was also little changed at US$1.2792, sitting not far from the week's high of US$1.2828, the strongest level since mid-March.
The dollar traded slightly stronger at 155.85 yen, but remained on track for a loss of nearly 1 per cent for the week.
The Bank of Japan also decides policy next week, and consensus is building in the market for an imminent reduction in the monetary authority's monthly government bond purchases.