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 The dollar fell sharply two weeks ago after the Fed once again kept
rates at their historic lows. But it has since gained around 2.5
percent against a basket of major currencies, as Fed Chair Janet
Yellen and other U.S. policymakers have kept alive the prospect of
an increase later this year.
On Friday, the dollar index was up 0.2 percent on the day, in a
subdued market before the U.S. non-farm payrolls numbers due at 1230
GMT. Economists expect employers added 203,000 jobs in September,
according to a Reuters poll.
"A good number is unlikely to support the U.S. dollar very much,
because everybody knows the labor market is doing well," said
Commerzbank FX strategist Esther Reichelt in Frankfurt.
"On the other hand, if we have a very disappointing number, the
effect for the U.S. dollar might be much stronger because everybody
knows that for the Fed to hike, everything must fit. So any
disappointment is likely to change the sentiment within the FOMC
members against hiking, or at least to spur further doubt, and this
will be reflected in a weaker U.S. dollar."
The euro was down 0.3 percent at $1.1160, leaving it on track for a
third straight week of losses against the dollar, its worst run in
eight months. Bets the European Central Bank will expand its 1
trillon-euro bond-buying program and a renewed appetite for risk
have pulled it down.
The euro has benefited in recent months during periods of risk
aversion, as investors who had held euro-funded positions on riskier
but higher-yielding currencies have unwound those so-called carry
trades by buying back euros.
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Now markets are shifting back toward risk, if only temporarily, said
Ian Stannard, Morgan Stanley's European head of G10 FX strategy in
London. The latest data from China - worries about which have driven
much of the risk aversion in recent months - was not as bad as some
had expected.
"We think there is a potential for a short-term but tradable risk
rebound to take place ... so we've turned quite positive on some of
the currencies that have been under the most pressure recently,"
Stannard said, citing the Australian and Canadian dollars.
"That means we think the euro will come under some renewed pressure
as well."
(Reporting By Jemima Kelly, editing by Larry King)
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