Dollar on backfoot ahead of key U.S. jobs data

© Reuters. U.S. Dollar banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration

By Rae Wee

SINGAPORE (Reuters) - The dollar struggled to gain a footing on Friday after falling by its sharpest pace in two weeks, as investors remained on tenterhooks ahead of the widely anticipated U.S. jobs data and amid growing worries about a recession.

The U.S. dollar index, which measures the greenback against a basket of currencies, fell 0.68% overnight, the largest fall since July 19, and last traded 105.79.

Investors await the key U.S. nonfarm payrolls report due at 1230 GMT, which will provide hints of how the U.S. economy is faring. Economists expect an increase of 250,000 jobs for the month of July, after 372,000 were added in June.

"Payrolls just clearly seems to be on everyone's mind for tonight, so I think that's keeping things relatively subdued," said Ray Attrill, head of FX strategy at National Australia Bank (OTC:NABZY).

However, signs of softening in the labour market could already be underway, as overnight data showed that the number of Americans filing new claims for unemployment benefits increased last week.

Against the weaker greenback, the euro surged 0.8% overnight and last traded $1.0238, though reprieve is likely short-lived as concerns about an energy crisis remain.

A stand-off over the return of a turbine that Russia says is holding back gas supplies to Europe showed no sign of being resolved on Thursday, as Moscow said it needed documentation to confirm the equipment was not subject to sanctions.

"We still expect EUR/USD to trade below parity, more than just briefly, over the next few weeks," said Joseph Capurso, head of international economics at Commonwealth Bank of Australia (OTC:CMWAY).

Meanwhile, sterling held steady at around $1.2157 in the early Asia trade on Friday, recouping most of its losses following a grim signal from the Bank of England. The pound is down about 0.3% for the week, reversing gains made the previous two weeks.

On Thursday, the BoE raised its benchmark rate by half a percentage-point to 1.75%, the highest since late 2008, but warned about a long recession ahead in Britain.

"Beyond the knee-jerk reaction to the very pessimistic Bank of England view of the economy - which I think was what really drove the pound down initially - there's been no follow through effectively, and I don't think anybody wants to take a view on whether that rebound is appropriate or not, until (we) see how the U.S. dollar behaves tonight," said NAB's Attrill.

Elsewhere, the dollar tumbled 0.69% against the yen overnight and is on track for a third straight weekly loss. It last traded 132.9 yen per dollar.

Similarly, the risk-sensitive Aussie and kiwi stood at $0.6956 and $0.6290, respectively, after rising about 0.2% and 0.3% overnight.