FOREX-Dollar hits 7-wk high vs euro, upbeat US jobs data to help
* Solid U.S. job data to cement case for a cut in Fed's stimulus
* Euro soft after Draghi dovish on ECB monetary policy
* Yen recovers from 6-week low on Japanese exporters buying
LONDON, Sept 6 (Reuters) - The dollar rose to a seven-week high against the euro on Friday on expectations of an upbeat U.S. jobs report that could pave the way for the Federal Reserve to begin unwinding monetary stimulus this month.
In contrast, the euro was struggling not just against the dollar, but against the yen and the British pound after the European Central Bank head said the bank was ready to cut official rates and inject more funds into the system to keep conditions accommodative.
The two-year U.S. Treasury yield was trading near its highest since May 2011, at 0.5100 percent, and the gap over similar German bonds widened to its highest since mid-July.
The 10-year benchmark yield, which has a strong correlation with the dollar index, touched 3 percent on Thursday, its highest in more than two years.
U.S. non-farm payrolls data for August are due at 1230 GMT and the report is the last one before the Fed meets later this month to decide on stimulus withdrawal. Employers are expected to add 180,000 jobs in August, and a higher figure would cement the case for tapering this month.
The euro fell to $1.3106, a seven-week low with traders citing a reported option barrier at $1.3100. The euro was also hurt by below-forecast German industrial output data . The dollar index was at 82.581, not far from a recent seven-week peak of 82.671.
"A strong U.S. jobs report, say 200,000 or more, in our view will drive U.S. yields higher and support the dollar," said Bernd Berg, global currency analyst at Credit Suisse. "While it will head higher against the euro, we think the impact will be felt more in the dollar/yen."
He expected dollar to rise past 100 yen if the data beats expectations. Rising U.S. yields would be expected to lure more Japanese investors into Treasuries, he added.
The dollar hit a six-week high of 100.24 yen in Asian trade before cautious Japanese exporters took that opportunity to convert dollars to yen just in case the U.S. payrolls data disappoints. The dollar was last trading 0.3 percent lower at 99.77 yen.
"Recent employment data have been robust, and should today's reading come in in-line with or above expectations, markets will cement the pricing of a September tapering, in our view, supporting the dollar," Morgan Stanley said in a note.
"In our medium-term portfolio, we are long dollar/Swiss franc, dollar/Canadian dollar and dollar/yen."
One factor that could act against the dollar and in favour of the yen, though, is a possible fall in Japanese shares if Tokyo is not selected by the International Olympic Committee this weekend to host the 2020 Summer Games. A drop in Japanese stocks benefits the yen, since the currency has an inverse correlation with the Nikkei
Near-term focus was on the U.S. jobs data with a slew of recent data bolstering the case for a strong number.
The prospect of the Fed withdrawing some of the flood of cheap dollars which has benefited emerging markets in recent years has prompted a round of soul-searching and policy discussions among leading developing nations.
More gains for the dollar could spell trouble for emerging market currencies, Credit Suisse's Berg added.