SYDNEY The U.S. dollar eased from a seven-week high early on Friday as investors booked some profits ahead of the keenly awaited U.S. jobs report, helping lift the euro that was briefly unsettled by dovish comments from the European Central Bank.
The dollar index last stood at 80.953 .DXY, having retreated from 81.187, a high not seen since late November.
Traders said the greenback could easily rebound if non-farm payrolls surprised on the strong side and fuelled expectations for the Federal Reserve to scale back its bond-buying stimulus more quickly.
"Ongoing improvement in the labor market may prompt the Federal Open Market Committee to take a more aggressive approach in normalizing monetary policy," said David Song, analyst at DailyFX.
But Song said any signs of a further slowdown in wage growth could actually encourage the Fed to further delay its exit strategy amid the threat of disinflation.
Against the yen, the greenback slipped to 104.83 from Thursday's high of 105.06, while the euro bounced to $1.3604 from a one-month low of $1.3548.
The common currency had initially fallen after the ECB forcefully underlined its determination to take action should deflation become a real risk or if rising money market rates threaten the bloc's fragile recovery.
But the euro ran into strong buying interest from a number of sources and failure to break below chart support around $1.3525 forced those who had sold earlier to quickly cover their positions, traders said.
The common currency also climbed against the yen, reaching 143.03 from 142.05. It traded at 142.58 in early Asian dealings.
For the week, the Canadian dollar is in contention to be the worst performer among major currencies, having already shed nearly 2 percent to its lowest in more than four years.
A string of disappointing domestic data has soured sentiment for the loonie, which fell as low as C$1.0875 per dollar, a level not seen since October 2009. It was last at C$1.0840 per dollar.
The Australian dollar didn't fare as badly although it has drifted lower through the week. The Aussie traded at $0.8892, down 0.6 percent on the week. Sentiment for the Aussie remains fragile after a 14.3 percent slump last year.
For Asia, the focus will be on Chinese trade numbers for a sense of how global demand is faring. Median forecasts are for exports to rise 4.9 percent in December, from a year ago, while imports are seen up 5.3 percent.
This series does tend to surprise, however, and any weakness will likely pressure commodity currencies such as the Aussie.
(Additional reporting by John Noonan; Editing by Edwina Gibbs)