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LONDON: The dollar index held near a three-week high on Friday and moves in currency markets were muted as traders waited for closely-watched US non-farm payrolls data later in the session.

Currency investors are looking for indications of the strength of the US economic recovery and the possibility of the Federal Reserve tightening its monetary policy, which is seen as positive for the dollar.

The consensus forecast for the data, due at 1230 GMT, is that about 650,000 jobs have been added in May.

The dollar rallied on Thursday, notching up its biggest daily gain in a month, after weekly US jobless claims fell below 400,000 for the first time since the Covid-19 pandemic started more than a year ago and private payrolls increased by significantly more than expected.

At 0718 GMT, the dollar index was up 0.1% on the day at 90.542, having hit a new three-week high earlier in the session.

The euro was down 0.1% at $1.21155 versus the dollar.

“Yesterday’s US dollar rally suggests an expectation of a strong beat on the headline number, as well as a big upward revision to the April number,” said Michael Hewson, chief market analyst at CMC Markets UK in a note to clients.

Positioning data shows investors heavily short dollars, leaving the market hypersensitive to any suggestion of a change in direction for the currency or a shift in the rates outlook.

Overnight implied dollar/yen volatility shot up to a month high above 8% on Thursday and euro/dollar implied volatility hit its highest since mid-March.

Foreign exchange strategists in a Reuters poll were almost evenly split on the dollar’s near-term direction following two months of broad weakness, as they await clearer signs from policymakers.

The Australian dollar, which dropped to its lowest since April on Thursday, held near these lows, at 0.76665, up just 0.1% on the day.

The New Zealand dollar likewise was stuck near the previous session’s lows, at 0.71545.

The Japanese yen changed hands at 110.195 versus the dollar.

China’s yuan softened past the 6.40 level, having shrunk away from its three-year highs when China’s central bank moved to limit the currency’s gains earlier this week.

US President Joe Biden signed an executive order on Thursday that bans US entities from investing in dozens of Chinese companies with alleged ties to defence or surveillance technology sectors, a move his administration says expands the scope of a legally flawed Trump-era order.

Cryptocurrencies fell after a tweet from Tesla boss Elon Musk appeared to lament a breakup with bitcoin.

Tesla’s big position in bitcoin and Musk’s large personal following often set crypto markets on edge whenever he tweets.

At 0736 GMT, bitcoin was down 6.6% at around $36,600, while ether was down 8% at around $2,627.

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