* Greenback on track for best week since November
* Aussie bounces after retail data, but fires weigh
* U.S. payrolls data eyed at 1330 GMT
* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh
By Tom Westbrook
SINGAPORE, Jan 10 (Reuters) - The dollar looked set to post its best week in two months on Friday, buoyed by easing Middle East tensions and upbeat U.S. economic data as investors turn to crucial jobs figures due later in the day.
The greenback is 1.3% firmer on the yen for the week so far, and up 0.6% against a basket of currencies.
The prospect of war in the Middle East ebbed on Wednesday as the United States and Iran backed away from further confrontation after a U.S. drone strike that killed a top Iranian military commander, and an Iranian missile attack on U.S. forces in Iraq in response.
Supporting the dollar, yields on U.S. government debt are now above where they were before the Jan. 3 drone strike that sparked fears of a broader conflict.
Meanwhile there has been a slew of strong economic signals, with data showing a pick-up in the U.S. service sector, falling joblessness claims and solid private hiring.
“There’s nothing fundamental to drive people out of the U.S. dollar at this stage,” said National Australia Bank’s head of FX strategy, Ray Attrill.
Moves in most major currencies were modest on Friday.
The pound recovered modestly to $1.3078 after hitting as low as $1.3014 overnight after Bank of England Governor Mark Carney hinted at a rate cut if economic weakness persists in Britain.
The dollar was steady at $1.1105 per euro. Against the yen it held at 109.53 yen per dollar, near a two-week high hit overnight.
Its next move will likely be determined by December job-market data due at 1330 GMT. The consensus forecast is for 164,000 extra jobs in December, following a bumper 266,000 added in November.
“(It) is not a huge amount of jobs compared with November, so if we do see something in line with the previous, then we could see a big rally in the U.S. dollar,” said Ashley Glover, Head of Sales Trading for Asia Pacific at brokerage CMC Markets in Sydney. “While the downside could be greatly heightened, with such a small number as the consensus.”
Elsewhere the Australian dollar rebounded 0.3% from a three-week low to $0.6876 after better-than-expected retail sales figures, lugging the kiwi higher with it.
The move wasn’t enough to make up for a terrible week so far for the Aussie, having shed more than 1% as investors reckoned that the bushfires raking the east coast could dent the economy and drive interest rate cuts.
Futures pricing implies a roughly 40% chance the Reserve Bank of Australia (RBA) will cut rates when it meets on Feb. 4, up from about a one-third chance priced in late last year.
“There is enough in (recent positive data) for the RBA to conclude that the gentle turn in the economy is continuing,” ANZ analysts said in a note on Friday.
“But we still think it more likely than not that the RBA will decide that the path of least regret is to ease again in February.”
An outlier this week has been the Chinese yuan, which has climbed to a five-month high, despite the geopolitical turbulence, on growing optimism as the Jan. 15 date for signing the Sino-U.S. trade deal nears.
It last traded at 6.9315 per dollar . (Editing by Jacqueline Wong & Simon Cameron-Moore)