By Ankur Banerjee

SINGAPORE (Reuters) – The dollar hovered near a six-week high on Friday, poised for its largest weekly gain since April due to safe-haven demand amid rising Middle East tensions.

Market activity is expected to remain subdued ahead of U.S. non-farm payroll figures due later today, which will impact the Federal Reserve’s outlook on interest rates.

Data released on Thursday indicated a slight increase in new unemployment benefit applications last week, as the U.S. labor market steadied toward the end of the third quarter.

For the payroll data, economists polled by Reuters expect an addition of 140,000 jobs, with the unemployment rate remaining stable at 4.2%.

“There is little evidence to suggest a U.S. hard landing is on the horizon,” said Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities.

“Our sense is that the risks to September non-farm payrolls lie to the upside and should see USTs (US Treasuries) continue their push higher in yield.”

As of late Friday, the dollar index, which tracks the U.S. unit against six peers, stood at 101.92, close to its six-week high of 102.09 reached on Thursday. For the week, the index has risen by 1.5%.

The euro remained stable at $1.1034, having dropped 1.18% during the week, while the pound recovered slightly after a 1% decline on Thursday due to dovish comments from Bank of England Governor Andrew Bailey.

The pound was last trading at $1.3131, close to the three-week low of $1.3093 hit on Thursday.

The U.S. jobs report arrives as markets navigate an improving U.S. economic situation and a more hawkish stance from Fed Chair Jerome Powell, who indicated that expectations for significant rate cuts next month may be misplaced.

Markets currently indicate a 33% chance of a 50 basis point interest rate cut by the Fed in November, a drop from 49% last week, following a previous cut last month.

A stronger-than-expected payroll number for September could be perceived as dovish, according to Kieran Williams, head of Asia FX at InTouch Capital Markets, aligning the unemployment rate with the Fed’s end-2024 forecast.

“This may lead some officials to deliberate on a 50 bps rate cut in November. Even if the payroll data is unremarkable, the USD will face another wave of significant data next month, with another payroll report before the November meeting.”

Investor attention this week has shifted towards escalating Middle East tensions, resulting in surging oil prices and declining risk-sensitive currencies.

The Australian dollar was recently up 0.14% at $0.6850 in early trading, but it’s down 0.8% for the week, on track for its first weekly decline in a month.

The New Zealand dollar remained mostly unchanged at $0.62135 but has dropped 2% this week.

Investors continue to process numerous dovish comments from Japanese politicians and policymakers, reinforcing views that the Bank of Japan will not rush to raise interest rates. Earlier this week, Japan’s new Prime Minister Shigeru Ishiba stated that the economy is not yet prepared for further rate hikes, leading to a weakening yen.

The yen has decreased by 3% this week, marking its largest decline since November 2016 and reaching its lowest level since August 20 at 147.25 per dollar. On Friday, the yen was up 0.2% at 146.63.