* Dollar index on track to lose nearly 0.7 pct this week
* Move still seen as consolidation after three weeks of gains
* Dollar/yen down from 9-1/2 month high set on Thursday
* Earlier bets against euro squeezed before Italy vote
* Euro/dlr implied volatility up
By Patrick Graham
LONDON, Dec 2 (Reuters) - The dollar was on course for its first weekly fall in four weeks against the euro and a basket of currencies on Friday, with investors trimming bets against the single currency before U.S. jobs numbers and Italy’s constitutional referendum.
Bets on the euro have largely been taken on options markets this week, driving implied volatility of the currency to its highest since Britain’s vote to leave the European Union in June.
But spot rates for the single currency have held up as the U.S. currency drifted lower, a move that most analysts cast as a short-term correction on the dollar’s surge since Donald Trump’s election on Nov. 8. Most banks forecast a broadly stronger dollar next year.
“We’re in a period of consolidation. We saw this in October, we spent the whole month rising and then we had a week of sideways trading,” said Neil Mellor, a strategist at BNY Mellon in London.
“I don’t think we need to overcomplicate things today. You have the Friday factor, there is always a degree of reserve before payrolls. It does also feel as if liquidity is already falling ahead of the end of the year. Some people may be sitting back and waiting for January.”
In early trade in Europe, the dollar index dipped 0.2 percent to 100.86, down 0.6 percent for the week. It was roughly steady against the euro while pulling back from Thursday’s 9 1/2-month highs of 114.83 yen.
The logic behind the dollar’s gains has been broadly about another rise in U.S. Federal Reserve interest rates later this month raising the premium for holding dollars.
That now looks fully priced-in, however, and some have argued the dollar may struggle for momentum until there is more clarity on Trump’s economic policy proposals and their ability to raise inflation rates and in turn drive rates higher.
“The sense I get is that people who have sold (the dollar) on rallies have taken a hit, while bulls are still doing fine,” said a trader with one Japanese bank, adding that market participants are probably looking to buy the dollar on dips.
Economists polled by Reuters expect that U.S. employers added 175,000 jobs in November, although a poorer batch of weekly jobs figures on Thursday hinted at a weaker number.
The focus for the euro is now on an Italian referendum on Sunday that could reject constitutional reforms, on which Prime Minister Matteo Renzi has staked his political future.
His departure could destabilise Italy’s fragile banking system and be taken as another sign of rising anti-establishment sentiment around the world, potentially eroding investor confidence in the currency union.
“High-frequency accounts and leveraged specs (speculative traders) have been reported on the bid, though there are plenty of offers ready to cap overdone rallies,” analysts from currencies exchange LMAX said in a morning note.
“There is sure to be plenty of volatility in Asia on Monday as the result of the Italian referendum comes in.” (Additional reporting by Shinichi Saoshiro in Tokyo, editing by Larry King)