Dollar poised for weekly loss, hurt by economic weakness and trade limbo
The U.S. nonfarm payrolls report expected later on will draw greater scrutiny after a slew of weaker-than-expected economic data this week underscored that President Donald Trump's tariffs were taking a toll on the economy.
Currencies were mostly rangebound in early European hours as traders steered clear of large bets ahead of the data release.
The euro was taking a breather after hitting a 1-1/2-month top on Thursday following hawkish remarks from the European Central Bank. It last bought roughly $1.1422, down just 0.2% on the day.
Traders have pushed back expectations on the timing of the next rate cut, but continue to anticipate a 25 basis point reduction by year-end.
Deutsche Bank's Mark Wall said he still expects 50 basis points worth of ECB rate cuts, adding "it is still too early to judge the impact of trade war, and the path of the trade war is in any case still inherently unpredictable."
Reflecting a struggling economy, data showed that German exports and industrial output fell more than expected in April and data on euro zone retail sales is expected later in the day.
Sterling dipped 0.2% at around $1.3546 having scaled a more than three-year peak in the previous session, and was set to rise about 0.6% for the week.
The yen fell 0.18% to 143.90 per dollar.
Most currencies had surged against the dollar late on Thursday, helped by news that Trump and Chinese President Xi Jinping spoke on a call for more than an hour, before paring some of their gains.
Against a basket of currencies, the dollar edged up to 98.9, and was headed for a weekly loss of 0.5%.
Analysts said Friday's U.S. jobs data would likely be the next catalyst for currencies.
Economists polled by Reuters forecast the U.S. economy created 130,000 new jobs in May versus 177,000 in April.
Job growth likely slowed considerably in May as businesses struggled with headwinds from tariff uncertainty, but probably not enough for a cautious Federal Reserve to resume cutting interest rates anytime soon, analysts said.
"Within all the noise... the softness that we've seen in the data this week has probably been more responsible for rejuvenating the bearish U.S. dollar narrative than anything else that's gone on," said Ray Attrill, head of FX research at National Australia Bank.
"We've always taken the view that once it becomes clear that the U.S. economy is no longer exceptional, and that the policy actions that we've seen to date, together with the relative tightness of Fed policy, will start to show through particularly in a weakening labor market. Hence the importance of tonight's numbers."
Adding to headwinds for the dollar, investors remain worried about U.S. trade negotiations and the lack of progress in hashing out deals ahead of an early July deadline.
The highly anticipated call between Trump and Xi also provided little clarity and the spotlight on it was quickly stolen by a public fallout between Trump and Elon Musk.
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