LONDON (Reuters) - The dollar slipped against major currencies on Friday as a rebound in European share prices eased some risk aversion fears, but trade was subdued ahead of U.S. payrolls data later in the day.
Investors tentatively sold off the dollar and low-yielding yen and bought into riskier assets, including higher-yielding currencies such as the euro and sterling.
The euro rallied around one percent to a session high of $1.2850, according to Reuters data. It later trimmed some gains but held above a low of $1.2654 earlier in the day. The dollar fell 0.4 percent to 97.38 yen.
"The sell-off in Asian equity markets was not so severe and S&P futures are up, leading to some dollar weakness," said David Powell, currency strategist at Bank of America in London. "But the repatriation bid is still very much alive."
Data from Europe on Friday reinforced the prospects for a prolonged global economic slowdown, which will likely keep investors wary of actively pursuing risks.
German industrial production fell by a larger-than-expected 3.6 percent in September, the largest monthly decline in nearly 14 years.
A bank lending survey from the European Central Bank showed banks will continue to tighten credit standards to firms and households in the fourth quarter. That would further slow growth and counteract the benefits of the central bank's 0.5 percentage point interest rate cut on Thursday.
EYES ON US JOBS REPORT
More dismal data is expected from the U.S. jobs report due out at 8:30 a.m. EST which is expected to show 200,000 non-farm jobs were shed in October, which would be the biggest drop in more than five years.
Analysts said a weak reading would likely trigger initial selling in the dollar as it would add to the view that the U.S. economy is rapidly deteriorating, but added the U.S. currency may ultimately gain on the argument that a struggling economy may pose greater risks to the global economy.
"If we see a really bad jobs number, we could see another round of risk reduction once again," said Geoffrey Yu, currency strategist at UBS in London.
Trade was choppy as investors still digested the impact of large rate cuts in Europe on Thursday.
The euro had slipped on Thursday in an initial reaction to the European Central Bank's 50 basis point rate cut to 3.25 percent, which had disappointed investors who had argued that a struggling euro zone economy warranted a bigger reduction.
In contrast, the Bank of England's surprise 150 basis point cut, which took rates to their lowest in 50 years to 3.0 percent, was seen as a decisive move to help spur the ailing UK economy.
This helped to boost sterling by around one percent versus the dollar on Friday, although a slide against the euro briefly pushed the pound's value against a basket of major currencies to 84.8, its lowest level in 12 years.
Some analysts said while sterling may receive some initial support from the BoE's aggressive move, extreme economic weakness would continue to weigh, and the euro would also stay under selling pressure from the gloomy economic outlook for the euro zone.
"With possibly six months of very weak economic data to come from all the major developed economies, it seems premature to us to believe that currencies will strengthen on the back of monetary easing," analysts at BTM UFJ said in a research note.
