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Dollar index at four-month low

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Safe havens yen and Swiss Franc perk up

(Updates with European midday trading)

By Yadarisa Shabong and Brigid Riley

March 7 (Reuters) - The euro was set for its best week

in 16 years against the dollar on Friday, boosted by Germany's

game-changing fiscal reforms, while worries over growth and

tariffs drove the greenback to a four-month low ahead of U.S.

jobs data.

It has been a volatile week for the currency market, driven

mainly by U.S. trade and economic growth uncertainties and a

pivotal development in Europe as its largest economy abandoned

its fiscal constraints to boost spending and revive growth.

"This week is a watershed moment ...because we've lived

through a couple of years of dollar and U.S. growth

exceptionalism," said Kenneth Broux, head of corporate research

FX and rates at Societe Generale.

Following a slew of mixed economic data out of the United

States so far this week, the focus on Friday falls on U.S.

nonfarm payrolls numbers as market participants will assess the

health of the economy and its implications on inflation and

interest rates.

The U.S. dollar index has fallen more than 3.5% this

week to its lowest since early November.

The euro, on the other hand, has risen more than 4.5% and

was set for its biggest weekly jump since March 2009. It was

perched at its highest since early November and was last up 0.6%

on the day at $1.08520.

"Right now we're in a situation where investors are buying

dips in euro/dollar and I think payrolls today can only

accelerate the move higher," Broux said.

"I do not think that a stronger NFP print is going to stop

this move higher in euro/dollar. It could slow it, but I don't

think it's going to change the trend."

The European Central Bank's hawkish rate cut and surging

European bond yields on the back of Germany's massive spending

proposal has helped lift the common currency.

BofA Global Research raised its year-end forecast for the

euro to $1.15, from $1.10 previously.

The pound headed for its worst weekly performance

against the euro since 2023, while it strengthened against the

dollar.

'FALLEN OUT OF FAVOUR'

Another reprieve of levies aimed at Mexico and Canada

announced by U.S. President Donald Trump on Thursday offered

little relief to whiplashed markets.

The greenback edged 0.1% higher on the Canadian dollar

to C$1.4317 but slipped 0.2% against the Mexican peso

to 20.2276 pesos.

The exemption expires on April 2 when Trump said he will

impose reciprocal tariffs on all U.S. trading partners.

The dollar has "fallen out of favour" amid the uncertainty,

with the perceived inflationary impact of tariffs no longer

enough to support it, said Kieran Williams, head of Asia FX at

InTouch Capital Markets.

"Ahead of the NFP survey, evidence has tilted towards a

softer outcome. If this transpires it could spook markets

further," he said.

Against a backdrop of federal job culls, the U.S. likely

added 160,000 jobs in February compared with 143,000 in January,

while the unemployment rate is expected to have held steady at

4.0%, economists forecast in a Reuters poll.

Federal Reserve Chair Jerome Powell will be able to follow

up the jobs report when he speaks later in the day on the

economic outlook.

Markets currently have three Fed rate cuts priced in for the

rest of the year.

The safe-haven yen is at its strongest against the

greenback since early October, while the Swiss franc hit a

three-month peak of 0.8838.

Japan's economy minister Ryosei Akazawa said the nation has

cleared the key threshold for the government to officially

declare an end to long-term price deflation.

Inflationary pressure from wage gains and prolonged rises in

food costs could prompt Bank of Japan board members to discuss

another interest rate hike as soon as in May, three sources

familiar with its thinking told Reuters.

Elsewhere in Asia, the offshore yuan steadied at 7.2346.

China's exports slowed over the January-February period and

imports unexpectedly contracted, official data on Friday shows,

as trade tensions escalated with the United States.

The risk-sensitive Australian dollar slid 0.2% to

$0.6320.