The dollar rebounded versus major peers on Friday, resuming its rally against the yen, ahead of a key U.S. jobs report that could cement the potential for a 50 basis-point Federal Reserve interest rate hike next month.
The status of the U.S. currency has garnered support due to its status as a preeminent safe haven, with peace talks between Russia and Ukraine stumbling, though they are set to resume later on Friday.
The dollar index, which measures the dollar against six counterparts, rose by 0.10% to 98.420, and was built on Thursday's 0.50% rise.
Mid-week it fell to a four-week trough of 97.681 amid a month-long consolidation that followed a breathless climb to a more than nine-month high at 99.415.
The FedWatch tool shows 71% of the odds that a half-point rate increase will be made by the Federal Open Market Committee on May 5, with CME Group's FedWatch tool showing 71% odds of a half-point rate increase.
The Labor Department report will show that close to half a million U.S. jobs were added last month, with the unemployment rate ticking lower while wage growth accelerated.
The dollar index has underwhelmed lately, but showing some backbone overnight and upside potential remains in scope amid the waves of hawkish Fedspeak and an aggressive frontloaded profile that includes nearly 100 bps in hikes over the FOMC's next two meetings, Westpac strategists wrote in a client note.
They predicted a break above 100 for the dollar index in the coming weeks. The second of the two FOMC meetings will be held on June 14 - 15.
The dollar went up 0.41% to 122.18 yen, its first gain in four days, as the currency pair tracked moves in long-term U.S. Treasury yields. It is little changed this week after a three-week surge of 6.5%.
The case for USD JPY going much higher is compelling, as the Fed's rate hikes will revolutionise the hedging arithmetic for JPY-based investors and the sensitivity to hedging costs is rising, according to strategists at RBC Capital Markets.
The rally in March has been driven by investors outside Japan anticipating domestic JPY selling, and little of this flow is likely to have happened yet. If positioning cleans up, we will revert to buying dips in USD JPY. The euro fell to $1.10690 after a sharp retreat from a one-month high of $1.11850 in the previous session, as Ukraine optimism faded. It is on course for a 0.82% weekly advance.
The pound fell 0.07% to $1.31360, bringing its loss for the week to 0.36%.
The Australian dollar was flat at $0.74825, down 0.45% this week after touching a nearly five-month peak of $0.7540.
The price of cryptocurrencies fell by 0.93% to $45,093. 74, slid 3.78% this week after reaching $48,234. For the first time since the beginning of this year, 00 was on Monday.