FOREX-Dollar in doldrums before U.S. payrolls report

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[April 01, 2016]  By Jemima Kelly

LONDON (Reuters) - The dollar slipped again on Friday after recording its weakest quarter in 5 1/2 years, with investors doubtful that monthly U.S. jobs data will convince them to bring forward their bets on when the Federal Reserve will raise interest rates.

The greenback shed over 4 percent against a basket of major currencies in the first quarter, as turbulent global markets and an increasingly cautious tone from the Fed pushed back expectations for when rates might rise again, after the first increase in almost a decade in December.

Against the euro, the dollar fell to a 5 1/2-month low of $1.1413 on the first day of the European Central Bank's expanded asset-purchase programme, which the ECB hopes will weaken the euro.

The dollar index fell 0.2 percent, taking its weekly losses to 1.9 percent - its worst week in eight.

The U.S. nonfarm payrolls report, due at 1230 GMT, is one of the most closely watched releases of the monthly data calendar. But some analysts said a strong report would not have the impact it often has, because it would need to be backed up by a more hawkish tone from the Fed to translate into dollar strength.

"But this has not been a normal week, in the sense that the Fed has dropped some very specific hints about the overwhelming policy bias at this juncture," said BMO Capital Markets currency strategist Stephen Gallo. "Fed dovishness should still hold risk aversion and the broad dollar back under most circumstances."

Earlier in the week, Fed Chair Janet Yellen highlighted risks to the global economy and said the Fed should proceed "cautiously" on raising rates.

After her speech, interest rates futures implied that traders saw only a 5 percent chance the Fed would raise rates at its next policy meeting, on April 26-27. They see only around a 50 percent chance that the Fed will raise rates at all this year.

The payrolls report is expected to show that employers added 205,000 jobs in March and average monthly earnings rose 0.2 percent after February's 0.1 percent decline.

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"The most important number for the U.S. dollar is the average earnings ... but even if we see a better number, this will create hope but it will not convince the market that everything is OK," said Commerzbank currency strategist Esther Reichelt, in Frankfurt.

"I don't expect substantial dollar appreciation, but rather for it to remain cautious."

Against the yen, the dollar slipped about 0.4 percent on Friday to 112.17 <JPY=>. It slid more than 6 percent against the yen in the first quarter, its biggest loss since 2009, as market turmoil sent investors into the perceived safety of the Japanese currency.

(This story has been refiled to correct lead paragraph to show dollar's weakest quarter in 5 1/2 years, not 6 1/2)

(Additional reporting by Lisa Twaronite in Tokyo, editing by Larry King

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