Investing.com – The US dollar traded largely unchanged in early European trade on Friday, as traders awaited the release of key US employment data, while the euro stabilized after a historic interest rate cut by the European Central Bank.
At 05:00 EST (09:00 GMT), the dollar index, which tracks the US currency against a basket of six other currencies, was trading flat at 104.060.
The dollar awaits the monthly jobs report
The dollar has been on the decline this week, with the index down 0.5% this week so far, as easing labor market conditions in the US increase the case for a Fed rate cut this year.
Weekly jobless claims came in slightly above last week's upwardly revised reading of 221,000 on Thursday, supporting the market's narrative this week that labor market tightness is easing.
Next is the upcoming month.
Forecasts show the world's largest economy added 185,000 jobs last month – slightly more than the 175,000 jobs in April, which was the smallest increase in half a year. It is expected to remain below 4% for the 28th consecutive month.
The employment report could prove that the economy is losing steam if it shows a continued slowdown in job creation, but an upside surprise could send the dollar higher.
Markets have priced in nearly 50 basis points of Fed rate cuts this year, with the first cut expected to take place in September.
Traders are reevaluating the interest rate cut by the European Central Bank
It fell 0.1% to 1.0884, retreating from a 2-1/2-month peak of 1.0916 hit earlier in the week as traders take stock of the European Central Bank for the first time since 2019.
At the same time, the central bank raised its inflation forecasts and the president refused at a press conference to confirm that he had entered a phase of “taping back” his restrictive monetary policy.
“Lagarde's comments during the press conference – which pointed to the level of restrictions that are still needed, the heavy reliance on data and the fact that one member of the Governing Council was against the decision to cut interest rates yesterday – suggest that the ECB has not yet decided on any decision. “Next steps,” analysts at ING said in a note.
It fell marginally to 1.2786, with sterling trading in a narrow range ahead of the Bank of England's next interest rate set later this month.
Limit ranges for the upcoming Bank of Japan meeting
In Asia, trading fell 0.2% to 155.33, with the focus squarely on next week's meeting, where the central bank is expected to start reducing its bond purchases and tighten policy.
It fell slightly to 7.2428, remaining close to six-month highs after the release of the latest Chinese trade data.
China's economy grew more than expected in May, supported by strong industrial production and external demand. This also saw the country record a larger surplus than expected.
But growth in China was much weaker than expected, suggesting that domestic demand remained weak at a time when the broader economy faces an uneven economic recovery.
