By Masayuki Kitano
SINGAPORE (Reuters) - The dollar hit seven-week highs versus a basket of currencies on Friday, supported by hopes for progress on U.S. tax reforms, while sterling was under the gun on worries over a possible leadership battle in the British government.
Congressional Republicans moved to hasten an overhaul of the U.S. tax code on Thursday, with the Republican-controlled House of Representatives approving a fiscal 2018 spending blueprint to help advance an eventual tax bill.
Solid U.S. economic data, along with the prospect of U.S. tax cuts and growing expectations for the Federal Reserve to raise interest rates in December have given a lift to the dollar in recent weeks.
The dollar index, which measures the dollar's value against a basket of six major currencies, edged up 0.1 percent to 94.097 <.DXY>. It rose to 94.112 at one point on Friday, its strongest level since mid-August.
The near-term focus is on U.S. job data for September, due later on Friday. The employment data is expected to show a slowdown in jobs growth, reflecting the effects from Hurricane Harvey and Irma.
"After both hurricanes, expectations are now very low... So I think any number above 100,000 will be a positive surprise," said Heng Koon How, head of markets strategy for United Overseas Bank in Singapore.
According to a Reuters survey of economists, the jobs data will likely show that nonfarm payrolls increased by 90,000 jobs last month after rising by 156,000 in August.
Against the yen, the dollar inched up 0.2 percent to 112.99 yen <JPY=>.
The euro touched a seven-week low of $1.1686 <EUR=>, and last stood at $1.1689, down 0.2 percent on the day.
Sterling remained under pressure and slipped to fresh four-week lows on Friday, dented by worries over a possible leadership battle at the top of the British government.
Divisions over the future of British Prime Minister Theresa May burst into the open on Friday, with allies saying she should carry on and a former Conservative Party chairman claiming the support of 30 lawmakers for a plot to topple her.
That came after May reinforced markets' doubts about her ability to govern effectively in a poorly-received keynote speech at the annual Conservative party conference on Wednesday.
Now that markets see the likelihood of the Bank of England raising interest rates in coming months, the pound appears vulnerable to any factors, such as weak UK economic data, that prompt a reassessment of such views, said Tan Teck Leng, forex analyst for UBS Wealth Management in Singapore.
"Markets are no longer net short (sterling), so there is a lot of room to take profit," Tan said.
U.S. Commodity Futures Trading Commission data released last week showed that currency speculators recently shifted to having a net long position in sterling for the first time since 2015.
Sterling fell 0.3 percent to $1.3080 <GBP=D3>. It slipped to $1.3073 at one point on Friday, its lowest level since Sept. 7. Sterling has shed nearly 2.4 percent this week, putting it on track for its worst weekly performance since October 2016.
The Australian dollar skidded to its lowest level since mid-July at $0.7743 and was last trading at $0.7753 <AUD=D3>, down 0.5 percent on the day.
(Reporting by Masayuki Kitano; Editing by Sam Holmes & Shri Navaratnam)