FOREX-Dollar edges down vs euro with data in focus, yen softer ahead of Japan election

By Stefano Rebaudo and Ankur Banerjee

Feb 4 (Reuters) - The U.S. dollar edged down against the euro on Wednesday as a delay in releasing key jobs data due to a partial government shutdown added to uncertainty over the Federal Reserve’s policy path.

Meanwhile, the Japanese currency was on track for its fourth straight daily fall versus the greenback ahead of national elections. Prime Minister Sanae Takaichi is seeking voter backing for increased spending, tax cuts and a new security strategy that is expected to accelerate a defence build-up.

The dollar jumped on Friday after U.S. President Donald Trump chose former Fed governor Kevin Warsh to head the U.S. central bank when Jerome Powell's leadership term ends in May, easing concerns about an overly dovish Fed.

Warsh has argued that productivity gains from artificial intelligence could justify easier policy, while calling for a smaller Fed balance sheet in a mix that would steepen the yield curve but leaves the broader interest rate direction uncertain.

Trump late on Tuesday signed a spending deal into law that ended a partial U.S. government shutdown after four days, although crucial employment data that was due on Friday will be delayed.

"The market has already priced out an interest rate cut by the Fed in March and sees the possibility of just two cuts by the end of the year," Antje Praefcke, senior forex analyst at Commerzbank, said.

"In this respect, labour market data in particular would have to be weak in order to reignite speculation about interest rate cuts and possibly put the dollar under downward pressure again, Warsh or no Warsh," she added, arguing that the ADP index, due later in the session, is a poor indicator for the jobs report.

The dollar index =USD, which measures the greenback against six major currencies, was roughly unchanged at 97.33.

STRONG EURO IN THE ECB FOCUS

The euro EUR= was 0.13% stronger at $1.1833, ahead of the European Central Bank policy meeting due on Thursday, with investors keen on any comments about how the single currency's valuation might affect the policy path.

The euro hit a 4-1/2-year high at 1.2084 last week with policymakers flagging growing concerns over its quick appreciation, warning that it could drag inflation down even as price growth is already set to undershoot the ECB's 2% target.

ECB Vice President Luis de Guindos said last summer an exchange rate of 1.20 versus the dollar was acceptable but levels beyond that could become more complicated.

Analysts said the euro/dollar has recently been driven almost entirely by sentiment over the greenback while interest rate differentials remained in the background.

Sterling GBP= rose 0.2% to $1.3727, ahead of the Bank of England gathering on Thursday. Both central banks are expected to stand pat on rates.

JAPANESE ELECTION IN FOCUS

The yen JPY= was 0.44% softer at 156.43 per dollar on Wednesday, its weakest since January 23, when the currency strengthened sharply from 159.23 amid speculation the New York Federal Reserve conducted rate checks.

"A strong showing by the LDP will embolden Takaichi to advance her budget stimulus plans, raising the risk of a larger government debt burden and weighing on Japanese government bonds and the JPY," Carol Kong, currency strategist at Commonwealth Bank of Australia, said.

Takaichi earlier this week triggered a yen selloff after a campaign speech in which she talked up the benefits of a weaker currency. While she later walked back those comments, worries linger that mixed signals from the prime minister could hurt efforts to support the frail currency.

The Australian dollar AUD= was up 0.2% at $0.7039 after a sharp 1% rise in the previous session as the Reserve Bank of Australia hiked interest rates.

Meanwhile, China's yuan briefly hit a near 33-month high against the dollar, underpinned by firmer central bank guidance, though the fix was weaker than anticipated and viewed by investors as an attempt to keep the currency's gains in check. CNY/

The yuan CNY=CFXS has been clocking steady gains pushed up by booming exports and, while analysts think authorities will resist further strengthening, risks are to the upside and could test the country's fragile economy.