**US Dollar Stabilizes Ahead of Key Jobs Report; Sterling Sees Rebound**

The US dollar steadied on Friday as traders awaited the release of the highly anticipated monthly jobs report. Meanwhile, the British pound strengthened following the Bank of England’s recent policy decisions.

As of 04:00 ET (09:00 GMT), the Dollar Index, which measures the greenback’s performance against a basket of six major currencies, was down 0.1% at 107.465, significantly lower than Monday’s peak of 109.88.

**Dollar’s Limited Movement**

The US dollar exhibited limited movement on Friday amidst a week of fluctuating trade driven by headlines related to US tariffs. Market participants are keenly monitoring the upcoming payroll data for insights on potential shifts in Federal Reserve monetary policy. The US economy is projected to have added approximately 154,000 jobs in January, a slowdown from December’s increase of 256,000. The unemployment rate is expected to remain stable at 4.1%.

Analysts at ING highlighted the importance of ongoing revisions to job creation figures, noting that significant adjustments to previous payroll data could impact perceptions of the labor market’s strength. “The Bureau of Labor Statistics had previously overestimated job creation by about a third, which raises concerns about the accuracy of their model,” they stated.

A strong labor market could give the Federal Reserve the flexibility to maintain higher interest rates for an extended period, which could, in turn, temper economic growth.

**GBP Strengthens After BOE Rate Cut**

In European trading, the British pound rose by 0.2% to 1.2464 against the US dollar, rebounding after dipping to 1.2370 on Thursday following the Bank of England’s decision to reduce interest rates by a quarter of a percentage point to 4.5%. While this move aligned with market expectations, certain policymakers advocated for a more substantial reduction given the current sluggish growth environment, causing the central bank to revise its growth forecasts for 2025 downward.

Meanwhile, EUR/USD saw a slight increase of 0.1%, reaching 1.0397, buoyed by the euro’s strength despite discouraging industrial production figures from Germany, which dropped by 2.4% month-over-month.

Analysts at ING suggested that potential weaknesses in the US payroll report could lead to a further uptick in EUR/USD, likely retesting the 1.044 level reached earlier in the week.

**Yen Gains Amid Rate Hike Anticipation**

In Asian markets, USD/JPY was 0.3% higher at 151.80, poised for its largest weekly decline since November, dropping over 2%. The Japanese yen found support from rising expectations of a future interest rate hike by the Bank of Japan (BOJ). Strong wage growth and increased household spending have fueled speculation that the BOJ may implement rate increases, with projections for rates to reach 1% by the end of 2025.

Additionally, USD/CNY dipped to 7.2871 as onshore markets reopened post-Lunar New Year, with the yuan facing downward pressure amid renewed trade tensions between the US and China. Traders are closely observing potential communications between US President Joe Biden and Chinese President Xi Jinping for any developments that could influence market sentiment.

**Market Outlook**

As we approach the release of critical employment data, forex traders should remain attentive to potential volatility in the US dollar and the impacts on broader market sentiment. The evolving dynamics with the Bank of England and the probabilities surrounding Japan’s rate adjustments will continue to shape trading strategies across major currency pairs.