- Dollar near 3-1/2-year low ahead of payrolls data
- Employment report could help shape US rate path
- Pound steadies after drop on fiscal worries
- U.S. House of Republicans advance tax-cut bill
SINGAPORE, July 3 (Reuters) - The dollar remained close to this week's 3-1/2 year lows on Thursday ahead of a key jobs report, and as a U.S.-Vietnam trade accord fanned expectations for other potential deals ahead of July 9 when U.S. tariffs take effect.
Sterling inched up after a nearly 1% drop on Wednesday, when UK Prime Minister Keir Starmer's office backed finance minister Rachel Reeves after rumours she would be dismissed over investor worries about Britain's finances.
British government bonds stabilized after a selloff on Wednesday fuelled by a tearful appearance by Reeves in parliament a day after the government backed down on welfare reforms.
The pound edged higher by 0.2% and last fetched $1.3665, while the euro was muted at $1.180, still near the September 2021 top it hit earlier this week. The yen was a tad weaker at 143.80 per dollar.
Currency strategist Carol Kong at Commonwealth Bank of Australia said market participants are worried Reeves could be replaced with someone less committed to the government's self-imposed fiscal rules and more willing to borrow.
"The pound can remain under downward pressure unless the U.K. government takes measures to restore market confidence in U.K. finances."
The U.S. dollar index , which measures the greenback against six other currencies, was flat at 96.748, remaining close to the 3-1/2-year lows it has been rooted to this week. The index is on course for a 0.5% drop for the week.
All eyes are on the U.S. Labor Department's comprehensive employment report for June, due for release on Thursday ahead of the July 4 holiday, which is expected to show that unemployment edged up to a more than a 3-1/2-year high of 4.3%, according to economists polled by Reuters.
Wednesday's private survey painted a grim picture of the labor market, pushing traders to shift expectations of when the Federal Reserve will lower interest rates. Traders are pricing in a 25% chance of a cut in July versus 19% a day earlier, data compiled by LSEG showed.
Today's data "will bring growth concerns firmly back into the spotlight and pressure on the Fed to accelerate its timetable is only going to increase," said Max McKechnie, global market strategist at J.P. Morgan Asset Management.
"With the inflation side of its mandate still further away from target than the employment side, the Fed should stick to its guns. The bar for easing should remain higher than a single weaker labour market print."
TRADE DEALS
Ahead of the July 9 tariff deadline, U.S. President Donald Trump said the United States had struck a deal with Vietnam and that he could push other countries to reach similar agreements.
Although details were scant, Trump said Vietnamese goods would face a 20% tariff and trans-shipments from third countries through Vietnam will face a 40% levy.
The Vietnamese dong slid to a record low, with UBS analysts suggesting the passing of tariff costs to exporters will likely be mitigated by the central bank through the allowance of a steady depreciation of the dong.
Progress on other deals has been slow. Japan has invoked national interests as talks with the U.S. struggled, while South Korea's President Lee Jae Myung on Thursday said negotiations were looking difficult and that he could not say whether talks would conclude by next Tuesday.
Meanwhile, Republicans in the U.S. House of Representatives cleared a procedural hurdle to advance Trump's massive tax-cut and spending bill, paving the way for a debate and final vote on the highly contested legislation.
The bill is set to add $3.3 trillion to an already swelling national debt, stoking fiscal worries. Bond investors around the world are growing increasingly nervous about government deficits in countries including Japan and the United States.
Reporting by Ankur Banerjee in Singapore and Johann M Cherian; Editing by Jacqueline Wong, Christopher Cushing, Philippa Fletcher
Source: Reuters