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Dollar Edges Lower; Tone Still Supportive Ahead of Payrolls

The dollar has given back some of its recent gains in early European trade Friday, but remains near multi-month peaks against its major peers ahead of the release of the widely-watched monthly payrolls report.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 92.558, having climbed to a three-month high during the previous session.

USD/JPY was up 0.1% at 111.57, just below a new 15-month high, EUR/USD edged down to 1.1846, just above a three-month low, GBP/USD rose 0.1% to 1.3771, near a fresh two-and-a-half month low, while the risk-sensitive AUD/USD was flat at 0.7469, near the lowest since December.

The dollar has been supported over the last couple of days by strong U.S. employment data, bringing into question the assumption that U.S. interest rates can stay at ultra-low levels for years.

Applications for U.S. state unemployment insurance fell last week by more than expected, according to data released Thursday, with initial jobless claims falling by 51,000 to 364,000, reaching a fresh pandemic low as the economy reopens.

This followed Wednesday’s private payrolls release, which showed U.S. companies hired 692,000 new employees in June, more than the 600,000 generally expected.

This brings into focus the official U.S. nonfarm payrolls release, due at 8:30 AM ET (1230 GMT), which is expected to show another weighty rise of 700,000 jobs in June, an improvement from the 559,000 jobs added the previous month.

However, with both the ADP and the weekly jobless claims coming in better than expected, market chat has been suggesting a higher payrolls figure. This would likely benefit the dollar given Federal Reserve policymakers have made the labor market the cardinal factor in determining monetary policy..

“The recent FOMC meeting suggests the Fed’s trigger-finger will be a little twitchier when it comes to tapering,” said analysts at ING, in a note, “but unless the NFP figure comes in close to the one million mark, financial markets will probably be set fair for a low volatility summer.”

Elsewhere, EUR/SEK rose 0.1% to 10.171 and USD/SEK climbed 0.2% to 8.5892 after Sweden’s central bank kept its benchmark interest rate and asset-purchase program unchanged on

Thursday, and signaled that it's in no hurry to tighten.

“The Riksbank will be towards the back of the pack when it comes to central bank tightening,” ING added.

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