Dollar steady before U.S. jobs data; EM currency index hits record high

By Elizabeth Howcroft

LONDON (Reuters) -The dollar was stuck around a one-week low on Friday, under pressure ahead of U.S. jobs data that is expected to point to a strong post-pandemic economic recovery in the United States and to increase investor risk appetite.

Against a basket of major currencies, the dollar index was at 90.837, down less than 0.1% on the day at 1054 GMT. It was on track for a loss of around 0.5% on the week overall, having seen its worst day in nearly two weeks on Thursday.

U.S. payrolls data is due at 1230 GMT and is expected to show that employers hired nearly a million workers in April, as they rushed to meet a surge in demand unleashed by the reopening of the economy and massive financial help from the government.

In the previous session, a larger-than-expected fall in jobless claims saw stocks rise and the dollar fall, suggesting that the dollar is acting as a safe-haven currency, hurt by improving risk appetite.

But if improving economic data stokes inflation worries and leads to expectations that the Federal Reserve will reduce monetary stimulus, that could boost U.S. yields and the dollar.

"If the dollar’s going to find another leg of support under this reflationary dynamic, the U.S. jobs data has to be substantially above expectations, which are already quite high", said Simon Harvey, FX analyst at Monex Europe.

"For us there's a big event risk this afternoon that we're going to see the data actually underperform what markets are expecting and we could see a dollar unwind".

Commerzbank strategist You-Na Park-Heger said that the dollar could benefit in the short-term from the data but that the labour market report would not set the longer-term trend for euro-dollar because the Fed would need to see more positive economic data before taking any action.

At 1059 GMT, the euro was up 0.1% on the day at $1.20715.

The British pound was a touch stronger against the dollar at $1.3912 and steady against the euro at 86.765 pence per euro.

The Bank of England said on Thursday that Britain's economy would grow by the most since World War Two this year and slowed the pace of its trillion dollar bond-purchasing programme but stressed it was not reversing its stimulus.

China's exports unexpectedly accelerated in April and import growth hit a decade high, helping to push the yuan and Asian stocks higher.

China’s yuan was at a more than two-month high versus the dollar, set for its longest weekly winning streak since September, helped by the strong trade data and softer dollar.

The MSCI emerging market currency index hit a record high of 1732.79 on Friday, lifted by gains in the Chinese yuan. Monex Europe's Harvey said that emerging market currencies were also benefiting from the "commodity supercycle".

"We expect the likes of AUD, CAD and NOK to remain well supported with the backdrop for positive optimism over global growth still quite favourable", wrote MUFG head of research Derek Halpenny in a note.

The Canadian dollar was down 0.2%, having surged on Thursday to its strongest in more than three years against the U.S. dollar.

"There could be some profit-taking on today's Canadian employment data, which is expected to be bad," Marshall Gittler, head of investment research at BDSwiss Group, said in a note.

The Australian dollar was down 0.1% versus the U.S. dollar, at 0.77735.

The Aussie has been supported by a strong rally in the prices of Australia's top export earner, iron ore.

Elsewhere, the cryptocurrency ether slipped 1%, having hit a all-time high on Thursday.

Bitcoin was little changed, at around $56,440 .

(Reporting by Elizabeth Howcroft; additional reporting by Hideyuki SanoEditing by Gareth Jones and Steve Orlofsky)