Dollar Falls Amid Caution Ahead of U.S. Jobs Data

The dollar fell slightly on Friday as traders exercised caution ahead of the key U.S. nonfarm payrolls report due the following day. The dollar has recently risen strongly in a short space of time, and there is potential for a short-term pullback, "perhaps by virtue of some profit-taking" ahead of the jobs data, Pepperstone strategist Michael Brown said in a note. Brown said he's "reluctant to read too much" into the dollar's current retracement and remains positive on the currency's medium-term prospects.

The dollar index, which measures the greenback against six major currencies, was down 0.03% at 103.91. The Japanese currency was last largely unchanged at 152.02 per dollar. On Thursday, the central bank maintained ultra-low interest rates but said risks around the U.S. economy were somewhat subsiding, signaling that conditions are falling into place to raise interest rates again. "We think the chances of a Dec. rate hike have somewhat increased after Gov. (Kazuo) Ueda's press conference," Morgan Stanley MUFG economists Takeshi Yamaguchi and Masayuki Inui wrote in a report on Thursday. Their base case remains for the BOJ to raise rates again in January to 0.5%, although they noted that factors such as dollar/yen and inflation data leading up to the year-end decision will be important.

The euro stood just off a two-week high against the greenback, buoyed this week after data showed that the euro zone's inflation accelerated more than expected in October. It was last down 0.02% at $1.0882. Sterling remained on the backfoot, down 0.06% to $1.2891, as investors continued to react after British finance minister Rachel Reeves launched the biggest tax increases since 1993 in her first budget. The pound slid to its lowest since mid-August at $1.28445 on Thursday.

The Fed's monetary policy decision next week comes just days after the U.S. presidential election on Tuesday. Republican candidate Donald Trump and Democratic Vice President Kamala Harris remain neck and neck in several polls, but some investors have been putting on trades betting Trump will win, lifting the dollar and U.S. Treasury yields. Trump's pledges to implement tax cuts, loosen financial regulations, and raise tariffs are seen as inflationary and could slow the Federal Reserve in its policy easing path.