The dollar edged down against most major currencies on Friday as investors awaited non-farm payrolls data for signs of whether the US economic upturn can weather a new range of headwinds.
The dollar has gained steadily against a basket of currencies since Britain's referendum vote two weeks ago to leave the European Union, while sterling, the euro and higher-risk currencies, including the Australian dollar suffered.
Set against the dollar's status as one of the world's safe havens for capital in uncertain economic times has been an almost complete retreat in any expectations for rises in interest rates this year.
“People are just waiting to see if the payrolls numbers confirm the baseline which is that the growth trend is lower and that the Fed will go very slowly on rates,” said Josh O'Byrne, a strategist with Citi in London.
“To change that consensus, we would probably need a very strong number. That would be the biggest reaction I think.”
By 0730 GMT, the dollar index was down 0.2 per cent at 96.167 points. The euro inched up 0.1 per cent to $1.1067, while sterling, down more than 13 per cent since Britain voted to leave the European Union on June 23, gained 0.2 per cent to $1.2935.
Some players in Asia said the yen had been helped by a dip in appetite for risk on news of the shooting of 11 police officers during rallies in Dallas to protest against the killing of two black men by police this week.
Those gains for the yen, another big winner from two weeks of volatile trading post the Brexit vote, evaporated in early trade in Europe and it traded flat at 100.66 yen per dollar.
Non-farm payrolls
The consensus forecast is for the US economy to have added 175,000 jobs in June, according to a Reuters poll, but investors remain wary given the negative surprise in the May payrolls report, which some expect to be upwardly revised.
A report overnight showed US private payrolls rose more than expected in June and jobless claims were lower than forecast.
“I think many investors want to continue to focus on the Brexit risks, so even if we get some good U.S. employment data, it might not be so helpful to overcome weak sentiment,” said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.
“My basic scenario is that dollar/yen will trade between 100 and 105 through the end of September,” he said.
BOE policy meeting
Most major bank analysts have forecast more weakness for sterling with a cut in official interest rates now at least 60 per cent priced in for next week's Bank of England policy meeting.
Investors also wonder if the Bank of Japan will decide to take further stimulus action at the conclusion of its two-day policy meeting on July 29, and what form such steps might take.
“Cutting rates is one of the key options the BOJ may look to when it eases policy next,” strategists at Nomura wrote in a note.
“After its adoption on January 29, its negative rate policy has not succeeded in improving investor sentiment as concerns over the negative impact on bank earnings were highlighted more than its benefits,” they said.