The dollar eased from a 9-1/2 month high against the yen on Friday, with investors cautious ahead of a looming U.S. jobs report that could set the market's tone in coming days.
U.S. employers likely boosted hiring in November amid growing confidence in the economy, making it almost certain that the Federal Reserve will raise interest rates later this month.
Nonfarm payrolls probably increased by 175,000 jobs last month after rising by 161,000 in October, according to a Reuters survey of economists. The Labor Department will release its closely watched employment report on Friday at 8:30 a.m. (1230 GMT).
The European Central Bank is expected to announce a six-month extension to its quantitative easing program next week, according to a majority of economists polled by Reuters, who also expect the bank to keep the size of its monthly asset purchases unchanged.
ECB President Mario Draghi said on Wednesday the bank will look at a combination of policy tools when it meets on Dec. 8 and that ultra-easy monetary policy has given governments in the region time for reforms. Those efforts need to be stepped up, he said.
A move at next Thursday's ECB meeting may help multiply the impact of the stimulus on the euro's exchange rate, especially since the U.S. Federal Reserve is widely expected to raise interest rates a week later, boosting the dollar.
The focus for the common currency is now on the Italian referendum on Sunday that could reject Prime Minister Matteo Renzi's constitutional reforms, on which he has staked his political future.
His departure could destabilize Italy's fragile banking system and be taken as another sign of rising anti-establishment sentiment around the world, potentially eroding investor confidence in the currency union.
"It's been said that markets are already prepared for a 'no' vote to some extent. However, that could trigger political uncertainty and delay fiscal reform," said Minori Uchida, chief FX analyst for Bank of Tokyo-Mitsubishi UFJ in Tokyo.
"We should brace ourselves for a further euro drop, even when the 'no' vote is already taken into account," Uchida said.
Italian voters are expected to reject constitutional reforms in a referendum on Sunday, as worries grew that a “no” vote could spark a political crisis and a selloff in Italy’s stock market.
But instead of running for the hills, investors should stay grounded and snatch up any beaten-down Italian shares, says J.P. Morgan’s chief European equity strategist Mislav Matejka.
“There could be a knee-jerk 2-4% market weakness on Monday if there is a ‘no’ outcome. But unlike following the U.S. election and Brexit, this will not be a big surprise, as the polls were consistently in a ‘no’ camp. Investors have already reduced exposure to Italy significantly,” he told MarketWatch.
Japan's third quarter economic growth is forecast to be revised up slightly thanks to better-than-expected capital investment, a Reuters poll showed, though recovery is still seen likely to be slow given feeble domestic demand.
The Japanese economy, the world's third-largest, was thought likely to expand an annualized 2.4 percent in July-September versus 2.2 percent annualized growth seen in a preliminary reading, the poll of 16 economists found.
Reference: Reuters, CNBC, Market Watch
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