Struggling dollar awaits U.S. jobs report for potential relief

By Shinichi Saoshiro

TOKYO (Reuters) - The dollar struggled near a 2-1/2-year low against the euro and a seven-week trough versus the yen on Friday in the wake of weak U.S. data, awaiting the closely watched non-farm jobs report later in the session for potential relief.

The greenback has been on the back foot through the week, weighed by largely uninspiring U.S. economic data which have added to uncertainty about the pace of future Federal Reserve policy tightening and political turmoil gripping Washington.

The market received a fresh dose of both factors overnight. Data from the U.S. Institute of Supply Management (ISM) showed its manufacturing index fell more than expected, while it was reported that a grand jury will investigate allegations of Russian meddling in the U.S. election.

Beleaguered dollar bulls looked to the U.S. jobs report due at 1230 GMT to turn fortunes around for the greenback, at least in the short term.

Economists polled by Reuters expect U.S. employers to have added 183,000 jobs in July, down from 222,000 in June.

The euro added 0.1 percent to $1.1878 and in striking distance of $1.1910, its highest since January 2015 scaled midweek.

The dollar was steady at 110.005 yen after touching 109.855 overnight, its lowest since mid-June.

"Expectations for the Fed hiking interest rates within the year are already less than 50 percent and the figure could drop further if the jobs report disappoints, taking dollar/yen towards 109.00," said Yukio Ishizaki, senior currency strategist at Daiwa Securities.

Fed funds futures implied traders saw a roughly 44 percent chance of a Fed rate hike in December, according to CME Group's FedWatch tool.

"While bargain hunting by Japanese institutional investors is preventing dollar/yen from sliding too far below 110.00 yen, there is also significant demand for the yen stemming from its gains against the pound and the Canadian and Australian dollars," Ishizaki said.

Sterling took a battering overnight after the Bank of England voted 6-2 to keep interest rates at current record lows and lowered its forecasts for growth, inflation and wages, disappointing investors who expected more hawkish messaging.

The pound was last at 90.410 pence per euro (EURGBP=D3) after retreating to a nine-month low of 90.485 pence overnight. It stood little changed at $1.3144 after losing 0.7 percent the previous day.

Against the yen, the pound extended losses from Thursday, when it slid 1.2 percent, to touch an 11-day low of 144.33 (GBPJPY=).

The dollar index against a basket of six major currencies was 0.15 percent lower at 92.704 (DXY), poised to lose about 0.6 percent on the week during which it fell to a 15-month low of 92.548.