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TOKYO: The dollar gained slightly on Thursday but hasn’t strayed too far from a recent two-month low as traders weighed how pivotal US jobs data coming out during a holiday weekend will impact Federal Reserve policy.

The closely watched US non-farm payrolls report on Friday will follow disappointing services sector data from the Institute for Supply Management (ISM) and private employment figures on Wednesday as well as a slump in US March manufacturing activity at the start of the week.

The slew of soft economic data has added to fears of an impending recession in the world’s largest economy, putting a lid on risk appetite and sending traders in search of some safe haven assets. The US dollar index was up 0.1% at 101.95, having slid to a two-month trough of 101.40 in the previous session.

The Japanese yen also found some support from safe haven bids and was last roughly 0.2% higher at 131.01 per dollar. Meanwhile, the risk-sensitive Australian and New Zealand dollars slid 0.29% and 0.27%, respectively.

“Weak economic data continues to weigh in on investor sentiment, triggering a flight-to-safety bid,” analysts at Westpac said in a note to clients. The soft data sent US shares lower on Wednesday while Treasuries advanced, which saw the benchmark 10-year yield falling to its lowest since September.

Yields fall when bond prices rise. The 10-year Treasury yield was last at 3.3126%, while the two-year yield, which typically moves in step with interest rate expectations, stood at 3.7922%.

Dollar gains after days of losses

“The key to FX is going to be that interplay between what the what the US economy numbers dish up as far as interest rates and sentiment about Fed policy,” said Ray Attrill, head of FX strategy at National Australia Bank.

The dour economic signs have strengthened the view that the Fed will reverse course on rate increases with traders hoping for more insight when Federal Reserve Bank of St. Louis President James Bullard speaks later on Thursday.

Cleveland Fed President Loretta Mester, a known hawk, said in an interview with Bloomberg TV on Wednesday that it was too early to know if the Fed would need to raise its benchmark rate at its next policy meeting in early May.

US rate futures markets are currently pricing in a 55% chance of the Fed leaving rates unchanged at its next meeting, up from a 43% chance a day earlier. Rate cuts are also being priced in as early as July and through to the end of the year.

In other currency action, sterling declined 0.1% to $1.2450, while the euro slipped 0.2% to $1.0886.

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