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Yen gains after Japan-US trade deal lowers auto tariffs

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Traders expect near-100% chance of Fed rate cut this month

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Trump's Fed nominee vows independence from political

pressure

(Updates latest price moves to European trading, adds

strategist quotes)

By Rocky Swift and Lucy Raitano

TOKYO/LONDON, Sept 5 (Reuters) - The dollar declined

versus major peers on Friday, trimming its weekly gain as bond

markets stabilised and traders awaited key U.S. jobs data

expected to firm up the case for an interest rate cut by the

Federal Reserve.

Data on Thursday showing higher-than-expected applications

for jobless benefits in the U.S. served as a prelude to the more

critical nonfarm payrolls report. Bonds rallied in the U.S.,

Europe and Japan after fiscal concerns spurred a run-up in

long-term yields, while the S&P 500 hit a new all-time high.

"It seems to me that the reaction to the ADP yesterday was a

bit too muted," said Francesco Pesole, FX strategist at ING.

"All in all, it is pointing to a probably weak payroll

figure today. I was a little surprised to see the dollar holding

up yesterday," he said.

He added that dollar weakness in early European trading

on Friday could be indicative of traders offloading greenbacks

ahead of the U.S. job figures later in the session.

On Friday, the dollar index, which tracks the

greenback against a basket of currencies of other major trading

partners, dipped 0.2% to 98.018, trimming its gain for the week

back to 0.2%.

The dollar dropped 0.2% to 148.14 yen. The euro

was up 0.2% on the day at $1.1682.

In the UK,

retail sales

data for July came in hot but failed to move the dial on

sterling, which was last up 0.2% at $1.34695, while

versus the euro, the pound weakened 0.05% to 86.74 pence.

Anxiety over U.S. President Donald Trump's meddling with Fed

policy and his unpredictable tariff regime has made investors

shy about holding dollar assets of late, said Bart Wakabayashi,

the Tokyo Branch Manager of State Street.

"The dollar remains very, very underweight,"

Wakabayashi said. "I do think there is room for the dollar

buying to come back at some point. Maybe investors are just

waiting for the rate cut to happen and then pile back in."

Several Fed officials said labour market worries continue to

support their calls for rate cuts, boosting expectations of an

imminent easing. The Fed is due to convene on September 16-17.

The Labor Department's Bureau of Labor Statistics (BLS) will

report U.S. nonfarm payrolls for August, with economists

surveyed by Reuters expecting an increase of 75,000 jobs after a

gain of 73,000 in July.

That follows figures on Thursday showing that U.S. private

payrolls rose by less than expected in August and jobless claims

in the final week of the month were higher than predicted.

"The risk is still tilted to payrolls underperforming U.S.

economists' expectations that will weigh on the USD tonight,"

Joseph Capurso, head of international economics at the

Commonwealth Bank of Australia, wrote in a note.

Traders are pricing in a near-100% chance of the Fed cutting

interest rates later this month, up from 87% a week ago, CME

FedWatch showed.

Michael Brown, senior research strategist at

Pepperstone, said that Friday's jobs report doesn't really

matter in the grand scheme of things.

"The Fed will be delivering a 25-bp cut at the September

meeting. A hot report shan't dissuade them from doing so, given

the broader trend of softening jobs data. A cool report shan't

convince them to plump for a larger rate reduction, given

lingering upside inflation risks," he wrote in a note.

Stephen Miran, Trump's pick to fill an open seat at the Fed,

said he would "not at all" be the president's puppet when

questioned by lawmakers on Thursday about whether he would make

interest-rate decisions independently of political pressure.

Trump signed an order on Thursday to implement lower tariffs

on Japanese automobile imports and other products that were

announced in July. Japan also confirmed its commitment to an

annual $7 billion worth of energy purchases from the U.S., a

joint statement from the countries showed.

The Australian dollar rose 0.4% to $0.6544. The New

Zealand dollar rose 0.6% to $0.58785.

In cryptocurrencies, bitcoin climbed 2.16% to

$112,796.78, while ether added 2.1% to $4,398.61.