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By Bloomberg

The dollar is trading in the narrowest weekly range since February as traders sit tight before U.S. jobs data that may alter the outlook for interest rates.

The greenback fell for a second day on Thursday after a decrease in jobless claims failed to counter speculation growth in the world’s largest economy has lost momentum. Employers have added more than 200,000 workers for 12 straight months, helping the dollar strengthen against all of its major peers over the past year amid speculation the Federal Reserve will raise rates by December.

“Investors are all the more cautious because up to now the recovery in the labor market has been going in a straight line,” said Kazuo Shirai, a Los Angeles-based trader at MUFG Union Bank NA. “If payrolls come out below 200,000, a June move by the Fed will become unlikely and a shift back to expectations for a September hike will push down the dollar.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 of its peers, was little changed at 1,191.42 at 1:11 p.m. in Tokyo, after falling 0.6 percent on Thursday. It rose 20 percent in the nine months ended March, a record three- quarter gain in data back to 2004. The index was in a 15 point range this week, the tightest since Feb. 27.

The dollar traded at $1.0871 per euro from $1.0880, and was steady at 119.67 yen.

Giving Ground

Strength in the U.S. currency started giving ground this month after a private employment report and manufacturing data damped speculation that economic growth is strong enough for the Fed to raise rates in June for the first time since 2006.

The Labor Department is projected to say Friday the U.S. added 245,000 nonfarm jobs last month, down from February’s 295,000 in gains, according to a Bloomberg survey of economists.

Payrolls would have to be “fairly good” for the market to expect the Fed to raise rates in June instead of September, MUFG Union’s Shirai said. The greenback may drop to $1.10 per euro if payrolls are less than 200,000, he said.

The odds of a Fed rate increase in June have fallen to 8 percent from 30 percent at the start of the year, futures prices show. A Morgan Stanley index shows the central bank will increase its benchmark interest rate, the target for overnight loans between banks, from near zero in about 8 months.

“If jobs data are weak, focus will be on yen crosses,” said Junichi Ishikawa, an analyst at IG Markets Securities Ltd. in Tokyo. “Dollar selling on retreating rate-hike speculation will be countered by yen selling pressures from rising U.S. stocks. To what extent the yen crosses will support the dollar- yen is key.”

Best Performer

Confidence that the central bank will eventually lift borrowing costs by December has helped the dollar stay the best performer among developed-market currencies over the past year, with a 19 percent advance against a basket of peers measured by Bloomberg Correlation-Weighted Indexes. The yen gained 2.1 percent, while the euro slid 7.8 percent.

Fed Bank of Atlanta President Dennis Lockhart said on Wednesday that although first-quarter economic activity slowed, the U.S. central bank should still be ready to raise interest rates from June to September.

“As long as payrolls don’t drop below 200,000, the dollar should react positively,” Takeru Kurokawa, an analyst in Tokyo at Ueda Harlow Ltd., which provides margin-trading services, wrote in a note to clients. “Caution over choppy markets is necessary as Europe observes Easter, reducing liquidity.”