By Jemima Kelly
LONDON (Reuters) - The dollar inched up from a four-week low on Friday ahead of the U.S. non-farm payrolls report later in the day but was on track for its worst week in 12, pressured by worries that Donald Trump could win next week's U.S. presidential election.
The greenback has fallen 1.2 percent this week against a basket of major currencies (DXY) as Democrat Hillary Clinton's lead over Republican rival Trump in polls has dwindled following the re-emergence of a controversy over her private email server.
The U.S. currency hit a nine-month high last week as investors bet that the Federal Reserve would hike interest rates later this year, but a Trump victory is seen creating political turmoil, while a Clinton victory is seen as a continuation of the status quo.
"Political uncertainty ... tends to be currency-negative because the markets find it more difficult to work out how things like trade policy and foreign policy are going to play out in the economy," said Rabobank currency strategist Jane Foley.
"What we do know about Trump is that he favors protectionist policies. And what we know about protectionist policies is that they're likely to be inflationary. That brings on a layer of uncertainty to the Federal Reserve."
Economists polled by Reuters forecast 175,000 jobs to have been added in October, in data due at 0830 ET. An upbeat jobs report is expected to bolster bets on a December rate hike, which would typically push U.S. yields higher and support the greenback.
But politics have moved ahead of economics as a factor in foreign exchange markets in recent weeks. Investors are focused on the Nov. 8 election and have paid scant attention to what would normally be key events such as the Fed's policy decision earlier this week.
"The market is likely to greet a strong payrolls report with a straightforward enough response and bid the dollar higher," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo. "But the rise could fade quickly amid the 'Trump risk' woes."
Any rise in the dollar right now will provide an opportunity for participants who have been caught long on the currency and want to square their positions, Ishikawa added.
The dollar was flat at 103.080 yen
For Reuters new Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets