* Dollar inches higher, hits four-week high vs yen
* Broader dollar index gains 0.2 pct
* Sterling back on defensive after Wednesday's bounce
* Market pausing before U.S. non-farm payrolls on Friday
By Patrick Graham
LONDON, Oct 6 The dollar ground higher on
Thursday, extending this week's four-week highs against the yen
before a jobs report many expect to help seal the case for a
rise in U.S. interest rates in December.
Rises in U.S. Treasury yields over the past 10 days have
been the main driver of a halt in the yen's steady progress this
year, pushing the Japanese currency back from 100 yen per dollar
to 103.77 on Thursday.
The yen was also within sight of Wednesday's five-week lows
against the euro, but in general moves across the major
currencies were subdued.
"Obviously, the big focus is the U.S. jobs data tomorrow, so
the market is likely to be in wait-and-see mode today," said
Alexandre Dolci, a strategist with Spanish bank BBVA in London.
"If we do have this double-whammy of positive headlines from
the U.S. data tomorrow - a strong NFP (non-farm payrolls) number
and a further pick- up in average earnings - then we may see the
dollar strengthen into the end of the week."
The dollar index, which measures its broader strength
against a basket of currencies, rose 0.25 percent to 96.352.
Against the euro it gained just over 0.1 percent to $1.1189.
Analysts from Morgan Stanley argued that the fall in the yen
was being driven by a drop in hedging activity as U.S. yields
"Over the course of the past few weeks, US front-end rates
have moved higher as the market prices in a 65 percent
probability of the Fed hiking rates by December," they said in a
"This repricing has primarily driven low-yielding
currencies. The yen has come under significant selling pressure,
supported further by foreigners net selling 1.89 trillion yen of
Japanese money market instruments."
Prime Minister Theresa May gave the pound - the big loser
among the major currencies in the past fortnight - a small bump
on Wednesday by warning of the negative side-effects of
ultra-low interest rates.
But signs that the government is ready to prioritise
controls on immigration over membership of the European Union's
single market continue to dominate minds, and it sank to another
31-year low of $1.2663 soon after the start of U.S. trade.
"My base case is that it is going to be extremely hard for
the UK to escape recession. The first two quarters of next year
are going to be extremely negative," said Davis Hall, Head of FX
and Precious Metals at wealth manager Indosuez in Geneva.
"Our ultra high net worth clients that have sterling, at
these levels we are not advising them to sell; the additional
downside below $1.25 is limited. But we're not expecting a
massive recovery either, we have (forecast) $1.32 in six
(Editing by Mark Trevelyan)