LONDON: The euro fell against the dollar on Friday after weak euro zone services data and before weekend elections in France and Greece, though falls were limited ahead of US jobs data later in the day.
Lower-than-forecast jobs creation in the United States could reignite talk of more Federal Reserve monetary easing, which would weigh on the dollar.
Figures due at 1230 GMT are expected to show 170,000 jobs were added in April. However, after weak private payrolls data earlier this week investors see a risk of a lower number.
"A non-farm payrolls number between 50,000 and 150,000 would make the market speculate about further QE which could weigh marginally on the dollar," said Carl Hammer, chief currency strategist at SEB in Stockholm.
But any gains for the euro were likely to be tame given concerns about the prospect of a deepening recession in the euro zone due to the region's debt crisis.
Purchasing managers' surveys on Friday showed the euro zone services sector contracted much more than previously estimated in April, with figures out of Italy and Spain particularly weak.
This mirrored poor PMI surveys on manufacturing activity earlier this week.
"The damaging thing is that the PMIs are plunging and even those in France and Germany have been revised down from the flash estimates," said Gavin Friend, currency strategist at National Australia Bank.
"This tells us things are deteriorating quite fast."
The euro was down 0.2 percent against the dollar at $1.3125.
It stayed above a two-week low of $1.3095 which it hit on Thursday before bouncing higher as European Central Bank chief Mario Draghi gave no strong hints about the prospects of more monetary stimulus.
With sentiment towards the common currency shaky, analysts said a weak US jobs report is likely to weigh more heavily on the dollar against currencies other than the euro, particularly the Japanese yen.
The dollar held steady versus the yen at 80.22 yen, staying above a 10-week low of 79.64 yen hit on Tuesday on trading platform EBS.
Traders said market positioning bodes ill for the dollar against the yen since currency speculators are still thought to be holding hefty short positions in the yen, suggesting a risk the yen could jump against the dollar if such bets are unwound.
But some analysts and traders said surprisingly good US jobs numbers could give the US currency a significant boost, given that the market is largely positioned for weaker data.
The dollar index was up 79.313, off a high of 79.422 hit on Thursday.
POLITICAL UNCERTAINTY
The euro faced risks from political uncertainty, with elections in France and Greece looming on Sunday, the results of which may stir doubts about the countries' commitment to fiscal austerity.
Markets are fearful that parties which disagree with Europe's obsessive focus on fiscal discipline will gain sway.
Francois Hollande, front-runner and first-round winner in the French presidential race over current President Nicolas Sarkozy, has pledged to shift the debate in Europe towards promoting growth if he is elected.
In Greece, opinion polls suggest the two main parties supporting the country's bailout scheme may not win enough seats to form a coalition over smaller parties opposed to the programme.
"With London closed on Monday, euro/dollar will be responding to these numerous political election results in less than ideal liquidity conditions," BTMU analyst Derek Halpenny said in a note to clients.
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