FOREX-Dollar steady as market braces for U.S. jobs report

CURRENCY - TOKYO. The dollar was steady on Friday as traders held off on making big bets ahead of the closely-watched U.S. non-farm jobs report that could influence the course of near-term Federal Reserve policy.

The dollar index against a basket of six major currencies stood little changed 96.754, having spent the previous day in a tight range as the U.S. financial markets were closed for the Independence Day holiday.

The index had fallen to a three-month trough of 95.843 last week as U.S. Treasury yield slumped to 2-1/2-year lows on expectations the Fed would cut interest rates this year, starting as early as this month.

The focus was now on whether Friday's U.S. jobs report will help make or break the case for a rate cut later in July.

Economists polled by Reuters are predicting U.S. non-farm payrolls to have increased by 160,000 in June from 75,000 in May.

"The dollar has been closely moving in correlation with U.S. yields and today will be no exception, with the bond market's reaction to the jobs report likely determining the direction of currencies," said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

"The bond market rally may have gone too far so its reaction to the jobs data could be volatile."

The dollar was flat at 107.840 yen. The greenback was little changed on the week, during which it briefly touched a two-week high of 108.535 when a U.S.-China trade truce boosted risk appetite and weighed on the safe-haven yen.

The euro was steady at $1.1283 and headed for a weekly loss of 0.75%. A drop in euro zone government bond yields to record lows this week, in sympthy with the global debt rally, has weighed on the single currency.

Germany's benchmark 10-year government bond yield matched the European Central Bank's deposit rate of minus 0.4% for the first time on Thursday, in the latest sign that markets are braced for interest rate cuts soon.

The Australian dollar was flat at $0.7023 after climbing to a two-month high of $0.7048 the previous day.

The Aussie has advanced 1.4% this week with expected rate cuts from the Fed and the ECB helping shift some of the focus away from the Reserve Bank of Australia's own easing bias.