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Dollar inches up before jobs data; sterling pauses after rally

The dollar inched up from three-week lows against a basket of currencies on Friday on expectations of a robust U.S. jobs number, which would lift some of the gloom caused by a weak growth report earlier this week.

Volumes were low ahead of the data which, according to a Reuters poll, is expected to show 210,000 jobs were added in April, well above the first-quarter monthly average of 177,667.

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An in-line reading would support the dollar as it would confirm the U.S. economy was on the mend after a harsh winter, traders said, and dollar bulls could look forward to a good second quarter.

The dollar index rose 0.1 percent to 79.594, having fallen to 79.414 on Thursday, its lowest since April 11. The dollar rose 0.15 percent against the yen to 102.50 yen, near the middle of the range it has traded in since February.

Read MoreStocks little moved before jobs report; Nasdaq up for third day

The euro was down 0.1 percent at $1.3855 while sterling, which hit a near five-year high of $1.6921 on Thursday was flat at $1.6895.

"The bias is for a good jobs report, upwards of 200,000, given all the indicators ranging from the weekly jobless claims to the ADP to the employment segment of the ISM survey," said Jeremy Stretch, head of currency strategy at CIBC World Markets.

The Institute for Supply Management (ISM) said on Thursday its employment sub index jumped to 54.7 from March's 51.1, which had been the weakest since June 2013. Analysts were looking for 52.8.

"Where the risk lies for the dollar is if there is a considerable undershoot (in payrolls). That will drag down U.S. yields and we could see dollar/yen tumble, sterling rise past Thursday's highs and euro back above $1.39," Stretch added.

Sterling buoyant, swedish crown weak

Major currencies showed limited reaction to latest developments in Ukraine, where government forces launched an operation to retake Slaviansk, pro-Russian separatists holding the town in eastern Ukraine said on Friday.

A big mover was the Swedish crown, which fell after more disappointing data. Sweden's purchasing managers' index (PMI) fell to 55.5 points for the manufacturing sector in April from 56.5 points in March.

Read MoreIs sterling punching above its weight?

The euro rose 0.2 percent to 9.04 crowns amid higher-than-usual volumes on the Reuters Matching platform.

Sterling took a breather in the wake of upbeat UK economic indicators and strong expectations of rate hikes early next year.

UK construction sector PMI will be released at 0830 GMT.

"Sterling could be the big winner were non-farm payrolls to disappoint today and perhaps an intra-Europe trade on the back of a stronger NFP could be long sterling/Swiss franc," Chris Turner, head of FX strategy at ING, said in a note.

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