By Tom Finn
LONDON (Reuters) - The dollar fell on Friday as the United States and China slapped tariffs on the other's imports, but a muted reaction in currency markets suggested the escalation had largely been priced in by investors focusing on a U.S. jobs report due later in the day.
The latest salvo in a trade conflict between the world's biggest economic powers was fired on Friday when U.S. tariffs on $34 billion worth of Chinese goods came into effect.
Investors are anxious to know whether the latest tariffs were a continuation of tit-for-tat measures or an escalation between the two countries which could cause volatility in global financial markets.
The immediate response among major currencies on Friday was limited.
"The first batch of tariffs is a milestone in the trade war but a very well-telegraphed one," said Elsa Lignos, global head of FX strategy, at RBC Capital Markets in London.
The dollar index against a basket of six major currencies fell 0.2 percent to an intraday low of 94.195 (DXY) after weakening to 94.177 the previous day, its lowest since June 26.
That helped the euro rise to $1.1727 (EUR=EBS), its strongest since June 26.
The euro is enjoying a boost from strong German industrial orders and signs Washington has softened its trade rhetoric toward European Union automakers.
The Australian dollar, a liquid proxy to China-related trades, rose 0.3 percent to $0.7419
The Japanese yen, which usually acts as a safe-haven currency during times of economic and political uncertainty, traded flat against the dollar.
The U.S. Labor Department is expected to report non-farm payrolls grew by 195,000 in June after surging by 223,000 in May. Monthly average hourly earnings probably rose 0.3 percent, taking the annual increase to 2.8 percent from 2.7 percent in May.
"Any misses in today's data could spur a wave of profit-taking - given signs that the U.S. dollar rally looks to be running out of steam," said analysts at ING.
The pound was effectively flat at $1.3235
Prime Minister Theresa May will propose a new plan to ease trade and offer Britain more freedom to set import tariffs, a last-ditch attempt to unite her government on plans for leaving the European Union.
China's yuan was 0.1 percent weaker at 6.6480 per dollar