The dollar headed for its sharpest weekly drop of the year on Friday as Federal Reserve Chair Jerome Powell sounded more confident about cutting interest rates in coming months, while the yen gained on mounting speculation of a rate rise in Japan.

Traders were on edge and early Asia moves small while waiting for U.S. employment data later in the day that could confirm or confound market expectations for a U.S. cut by June.

Overnight the European Central Bank left its benchmark rate steady at 4% and laid groundwork for a cut in June. The euro rose, however, because the Fed funds rate is at 5.25-5.5% and investors see the United States as having more room to cut.

The common currency hit an almost two-month high of $1.0954 in the Asia session - putting it back in the middle of a range it has kept for a year. It is up 1% on the dollar for the week.

The yen is up 1.6% on the week, its strongest percentage rise since December as policymakers have noted signs of positive wage-price cycle sustaining inflation - setting the stage for Japan's first interest rate increase in 17 years.

The yen was above its 50-day moving average and at its strongest in a month at 147.54 in early Asia trade on Friday.

The dollar's weakness this week also set the Australian and New Zealand dollars 1.5% and 1.2% higher on the week respectively. Sterling is up 1.3% this week to a 2024-high of $1.2820.

The Aussie is at its highest since mid January at $0.6629 and the kiwi at a week high of $0.6183.

Economists expect the U.S. added a solid 200,000 jobs after January's blowout 353,000.

Source: Reuters