By Kevin Buckland

TOKYO (Reuters) – The dollar hovered below a two-week high on Thursday, consolidating ahead of a key U.S. jobs report that may provide clues on when the Federal Reserve will dial back monetary stimulus.

The greenback has rebounded from a one-month low over the past week, swung by U.S. economic data that has largely supported the case for a rapid recovery from the pandemic, with traders weighing whether a lift in inflation may force the Fed’s hand earlier than policymakers have so far suggested.

The dollar index, which measures the U.S. currency against six major peers, was little changed at 91.316 on Thursday, after rising as high as 91.436 in the previous session for the first time since April 19. It had dipped as low as 90.422 on April 29.

“The USD is likely to continue to respond to the debate about whether or not the Fed’s view that inflation will be transitory is correct,” Rabobank strategist Jane Foley wrote in a research report.

With several forecasters predicting a one-million-plus increase in nonfarm payrolls, “the USD may continue to find a good level of support in the near-term,” with the currency strengthening to $1.19 per euro over a one-month horizon, she said.

The euro traded at the psychologically important $1.20 mark on Thursday, after dipping to $1.1986 on Wednesday for the first time since April 19.

The dollar bought 109.34 yen, consolidating after rallying as high as 109.695 on Monday, a level not seen since April 13.

So far, Fed Chair Jerome Powell has argued the labour market is far short of where it needs to be to start talking of tapering asset purchases. The central bank has said it will not raise its benchmark Fed funds rate through 2023.

Three Fed officials spoke on Wednesday, with Chicago Fed President Charles Evans saying that while he was more optimistic about U.S. growth than he was a few months ago, he expects monetary policy to stay super-easy for some time.

Boston Fed President Eric Rosengren said inflation will be temporarily distorted this spring as the U.S. economy works through imbalances caused by the pandemic but the pressures should be short-lived and should not lead to a pullback in monetary policy.

Cleveland Fed President Loretta Mester said more progress will be needed in the job market before the Fed’s conditions for reducing its extensive support will be met.

“Despite constant reassurances from (U.S. Treasury Secretary Janet) Yellen and an array of Fed officials that the coming increase in inflation will prove ‘transitory,’ … markets are evidently a bit more worried,” National Australia Bank (OTC:NABZY) strategist Rodrigo Catril wrote in a client note.

The dollar bounced on Tuesday after Yellen said rate hikes may be needed to stop the economy from overheating, though she later downplayed the immediacy of tightening.

The commodity-linked Canadian dollar traded at C$1.2268 per greenback after hitting a three-year high of 1.2252 on Wednesday, helped by higher crude prices and optimism over the global economic recovery.

Sterling was little changed at $1.3904, consolidating around that level over the past two weeks with the Bank of England expected by some forecasters to announce a tapering of its bond-buying programme at a meeting later Thursday, after vaccinations bolstered Britain’s economic recovery.

In cryptocurrencies, ether traded at $3,462.62 after reaching a record $3,559.97 on Tuesday, the ninth straight day to mark an all-time high.

Bigger rival bitcoin was around $56,755, vacillating between around $59,000 and $52,000 in recent days. It marked a record high at $64,895.22 in mid-April, but then lost momentum, slumping as low as $47,004.20 toward the end of that month.

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