April 1, 2014 / 3:40 PM / 4 years ago

FOREX-Dollar weakens ahead of Friday's jobs data

* Dollar knocked off two-week highs vs currency basket

* Yellen says Fed’s commitment still needed for some time (Recasts, updates prices, adds quotes and changes byline and dateline, previous LONDON)

By Michael Connor

NEW YORK, April 1 (Reuters) - The dollar eased on Tuesday as currency traders looked ahead to key U.S. jobs data due Friday and shrugged off a report showing growth at U.S. factories accelerating.

The dollar index slipped 0.12 percent to 80.008, off a two-week high of 80.296 on Monday, when Federal Reserve Chair Janet Yellen defended the U.S. central bank’s loose-money policies.

The euro was up against the dollar by 0.26 percent in New York trading to $1.3810.

Against the yen, the dollar touched a high of 103.61 yen , its best since March 7, after a report showed factory growth increasing for a second straight month.

“The focus is on U.S. data,” said Shaun Osborne, foreign exchange strategist at TD Securities in Toronto.

March U.S. non farm payrolls are scheduled for release on Friday.

In earlier trading, the yen had been hurt by Japan’s Tankan survey that raised doubts about whether economic activity will continue to improve this year. The survey will keep alive expectations the Bank of Japan may ease policy further if the pain from a sales tax hike proves worse than expected, analysts said.

“If there is clear weakness in the economic data from Japan, we could see the BOJ ease policy,” said Yujiro Gato, currency strategist at Nomura. “But we do not expect that policy easing to take place anytime soon, perhaps in the third quarter.”

“So those expecting the BOJ to ease in the short term could be in for a disappointment. But any dips in dollar/yen should be bought into, and we eventually expect it to rise to 104 yen.”

In a fresh setback for dollar bulls, Yellen said on Monday “considerable” slack still existed in the U.S. jobs market and further monetary stimulus could be effective. Her comments somewhat countered those made last month, when she suggested the possibility of rate hikes from early 2015.

Still, with the Fed on track to withdraw monetary stimulus, any further easing by the BoJ is expected to weigh on the yen, said Jane Foley, senior currency strategist at Rabobank.

“On the assumption that yields on U.S. Treasury paper rise in the aftermath of QE, the continuation of an aggressive expansionary policy in Japan suggests the yen may again become a popular funding currency in the coming months,” she added.

The euro rebounded from Monday’s low of $1.3721 after data showed easing price pressures in the euro zone. Most traders do not expect the European Central Bank to ease policy on Thursday, despite the drop in inflation last month to 0.5 percent.

The euro was up 0.55 percent against the yen at 142.92 yen . (Reporting By Michael Connor in New York; Editing by Nick Zieminski)

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