Dollar pressured by lukewarm US data as jobs report awaited

TOKYO: The dollar stayed off this week's lows in cautious trading on Friday as investors awaited key monthly US employment data after other tepid economic data cast doubts on whether the Federal Reserve will raise interest rates again this year.

The dollar index, which tracks the greenback against a basket of six rival currencies, was flat on the day at 92.688 , poised for a slight weekly drop. It remained well above this week's 2-1/2-year low of 91.621 plumbed against a background of tensions on the Korean peninsula.

Japanese Finance Minister Taro Aso said on Friday that he was cancelling a planned trip to the United States for preparatory economic talks because of national security uncertainties posed by North Korea after it fired a missile that flew over Japan on Tuesday.

Against the yen, the dollar edged up 0.1 percent to 110.04 , up 0.6 percent for the week and well above this week's 4-1/2-month nadir of 108.265 yen.

"It's hard for investors to make decisions now, when it comes to foreign exchange rates," said Harumi Taguchi, principal economist at IHS Markit in Tokyo.

"Even if it ever looks increasingly as if the Fed is going to hike rates, there are US political risks, as well as geopolitical tensions, particularly around the North Korean situation, and when these flare up, they push up the yen," she said.

The yen tends to gain in times of crisis due to expectations that Japanese investors will repatriate assets.

Also weighing on the US currency were comments by Treasury Secretary Steven Mnuchin, who suggested on CNBC that a weaker dollar    might have advantages for US trade.

Mnuchin also said that tropical storm Harvey which ravaged Texas could bring forward the deadline by which the nation's debt ceiling needs to be raised.

Data released on Thursday showed US consumer spending rose slightly less than expected in July and annual inflation increased at its slowest pace since late 2015. There was also a small increase in new applications for unemployment benefits last week amid a tightening job market.

Friday's nonfarm payrolls report is expected to show that employers added 180,000 jobs in August, according to the median estimate of 93 economists polled by Reuters.

"I don't think today's jobs data will make much difference to the Fed," said Mitsuo Imaizumi, Tokyo-based chief foreign-exchange strategist for Daiwa Securities.

"Whether or not the Fed hikes again depends on the overall trend, and what the employment situation is like in autumn, and by then, no one will be thinking about the August figures, whether they're good or bad today," Imaizumi said.

Financial markets were pricing in a roughly one-in-three chance of a rate increase at the Fed's December meeting, according to CME Group's FedWatch, down from about even chances as recently as last month.

At its meeting later this month, the Fed is still expected to announce its plan to begin trimming its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities.

Elsewhere, at its own policy meeting next Thursday, the European Central Bank is highly unlikely to take any decision on trimming its asset purchases, which will be phased out only slowly as the euro's rapid gains against the dollar are worrying a growing number of ECB policymakers, three sources familiar with discussions told Reuters.

The euro edged down 0.1 percent to $1.1895, down 0.2 percent for the week but up more than 13 percent this year.

The ECB's purchase scheme is due to expire at the end of 2017 and the central bank has said it will announce in autumn if it will extend the plan it put in place two and a half years ago. ECB chief Mario Draghi has said that the programme will continue until the central bank is happy that inflation is consistent with its medium-term target of just below 2 percent.