The US dollar moved in a narrow range against the euro and the yen on Friday as a Japanese holiday thinned trading volume and investors turned cautious ahead of US jobs data. The holiday provided the dollar with some respite after its weakness this week.
It hit one-month troughs against the euro and yen after softness in US manufacturing and factory output data raised expectations the Federal Reserve would cut interest rates. The one really resilient part of the economy has been the labour market so any weakness in payrolls could hit the currency.
"There's general dollar weakness sentiment at the moment, which is not surprising after recent weak figures out of the US," said Jason Sie, head of spot currency trading for Asia-Pacific at BNP Paribas. "It is tough to be long dollars at the moment with non-farm payrolls tonight," Sie said.
That seemed to be the consensus view. Still, the euro struggled near $1.2775/80, stopping short of Thursday's high of 1.2785 and Wednesday's one-month peak near $1.28.
"The run of soft data suggests the risks are to the downside for payrolls," said John Kyriakopoulos, a currency strategist at nabCapital. "Employment is the one shoe that hasn't dropped yet in the whole slowdown story, so a poor result could have a big impact."
The median forecast is for a rise of 125,000 in non-farm payrolls in October but the latest derivatives auction on the data shows the market is betting on something nearer 99,500.
"The expectations are lower and the risk still looks for lower dollar. A weak non-farm payroll would start to confirm a US slowdown," said Gerrard Katz, regional head of currency trading for north Asia at Standard Chartered Bank. Katz said a weak number could push the yen towards 116.50 per dollar. It was quoted at 117.12/15 per dollar.
The dollar had fallen as far as 116.68 yen on Thursday after Japan's top financial diplomat, Hiroshi Watanabe, said there was no reason for the Japanese currency to weaken, given that the economy was recovering. Traders said the market seemed poised to sell the dollar even if the jobs data proved stronger than expected. "Even a surprise good figure in the US will be an opportunity to go short dollars, I reckon," BNP Paribas's Sie said.
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