A look at the day ahead in European and global markets from Rae

Wee

The dollar's 1% fall for the week thus far is set to be its

steepest in nearly three months, and tonight's U.S. jobs data is

the next test for the greenback.

It would take a very, very strong number to change the

outlook for U.S. rates, given how Federal Reserve Chair Jerome

Powell has already opened the door to cutting rates even if

unemployment stays low, as long as inflation continues to slow.

Forecasts are for nonfarm payrolls to have increased by

200,000 in February, down from January's blowout 353,000 gain.

"We believe fewer end-of-year layoffs produced (the)

temporary spike, and with the seasonal layoff period now behind

us, we assume a return towards a more normal pace of job gains,"

analysts at Goldman Sachs said.

So for now, the first of the Fed's rate cut seems to be

within sight - unless next week's U.S. inflation report proves

otherwise.

The dollar has thus far been the clearest reflection of the

easing expectations, with its recent move lower and buoyant risk

sentiment hoisting the Aussie back above the $0.6600

level.

Record peaks for gold and bitcoin this week

also show the dollar's vulnerability.

The euro, too, is at a two-month high and eyeing

its best week against the dollar in months, even as the European

Central Bank (ECB) on Thursday laid the ground for a rate cut in

June and lowered its inflation forecast.

TURNING THE PAGE

While most of the world focuses on the global easing cycle,

over in Japan, it seems the time is ripe for a rate hike.

Bank of Japan (BOJ) officials have begun ramping up their

hawkish rhetoric and shown increasing confidence that the

Japanese economy was moving towards the BOJ's 2% inflation

target, just ahead of the central bank's March 18-19 policy

meeting.

Wage talks from large Japanese companies also look set to

yield hefty pay hikes, paving the way for the BOJ to exit

negative interest rates, which some say could happen this month.

That's helped the yen - which has crumbled under a towering

dollar for the most part of the past two years - jump to a

one-month high against the greenback on Friday.

Japan's banking stocks index was similarly eyeing

a weekly rise of more than 6%, its strongest performance since

September, when there was a lot of speculation of an imminent

policy shift heading into the BOJ meeting that month.

"Our BOJ call of an early NIRP (negative interest rate

policy) removal in March and an additional rate hike in 2024

used to be an out-of-consensus call, but more market

participants and economists may start to price in the scenario

ahead of the March (monetary policy meeting)," said economists

at Morgan Stanley MUFG Securities.

Key developments that could influence markets on Friday:

- Germany industrial output (January)

- Germany industrial production (January)

- Euro zone revised Q4 GDP

- U.S. nonfarm payrolls (February)

(Editing by Jacqueline Wong)