FOREX-Dollar sell-off ebbs, but on track for biggest quarterly fall in five years

* Dollar index up 0.1 percent, off near five-month trough

* U.S. payrolls, average wage numbers in focus

* Month-end rebalancing flows dominate trading

LONDON, March 31 (Reuters) - A sell-off in the dollar that took the currency to its lowest in seven weeks against the euro took a pause on Thursday, although moves were muted with trading dominated by month-end rebalancing flows.

These flows are caused by global portfolio managers adjusting their existing currency hedges, with some banks taking the view that these could weigh on the dollar.

The dollar index remained on track for its biggest monthly fall since April 2015 and its largest quarterly loss in five years, as dovish comments from Federal Reserve Chair Janet Yellen continued to resonate, prompting investors and speculators to trim favourable bets in the greenback.

The index was up 0.1 percent at 94.936, having come within a whisker of a five-month trough of 94.578 set two weeks ago. The dollar was flat against the yen at 112.25 yen, while the euro was slightly lower at $1.1325, having hit a peak of $1.1377.

The single currency was on track to post a quarterly gain of around 4 percent.

“Things have settled down a bit after those comments from Yellen, with the focus turning to the U.S. jobs data on Friday,” said Nordea FX strategist Niels Christensen.

“More than the employment numbers, what will be important are the average earnings, and if that misses expectations, then we could see the dollar come under more pressure,” Christensen added. “Yellen has left the dollar vulnerable to the downside.”


U.S. nonfarm payrolls are expected to show the world’s largest economy added 205,000 jobs in March, with the jobless rate steady at 4.9 percent. Average earnings, seen as signalling inflation trends, are expected to rise 0.2 percent.

Despite signs of inflation picking up in the United States, Yellen said on Tuesday the Fed will proceed cautiously in raising rates and highlighted external risks such as slower global growth.

Chicago Fed President Charles Evans on Wednesday underscored that caution, saying a “very shallow” series of rate hikes over the next few years is appropriate to buffer the U.S. economy from outside shocks and the risk of inflation slipping too low.

Citi analysts said the dovish message in Yellen’s speech along with month-end adjustment would keep the dollar under pressure.

In the European session, the focus will be on euro zone inflation data. While it is expected to show some signs of improvement, traders are cautious about pushing the euro too much higher, given the European Central Bank’s ultra-accommodative policy stance.

“It looks more like the euro is forming a triple top here. I doubt it can rise above $1.14. We would need a stronger reason to push the euro above those levels,” said a trader at a European bank in Tokyo. (Additional reporting by Hideyuki Sano; Editing by David Holmes)