By Jemima Kelly
LONDON (Reuters) - The dollar struggled near its lowest since May 2016 against a basket of currencies on Friday in the wake of weak U.S. data, as traders awaited the key non-farm payrolls report due later in the session for potential relief.
The ailing greenback has come under pressure this week from fresh political turmoil in Washington, as well as largely poor U.S. economic data, which have added to uncertainty about the pace of future Federal Reserve policy tightening.
Markets were provided with more worrying signs -- both economic and political -- late on Thursday.
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Data showed a much sharper-than-expected slowdown in growth in the U.S. services sector, which hit an 11-month low. Meanwhile, news broke that a grand jury will investigate allegations of Russian meddling in November's U.S. election.
The dollar index, which has just recorded its worst run of monthly losses since early 2011, was 0.1 percent lower at 92.766, poised to lose about 0.6 percent during a week in which it fell to a 15-month low of 92.548.
"It is becoming increasingly clear that the greenback is ... suffering as a result of President Trump's weak government -- the situation in the White House is simply too chaotic," wrote Commerzbank strategists in a note to clients.
"That means any hopes that arose after the elections and resulted in a sharp rise in inflation expectations have since been dashed."
The greenback had risen to 14-year highs in the two months after Donald Trump was elected U.S. president, on the view that his policies would boost growth and inflation. But it has since tumbled more than 10 percent, as worries over Trump's ability to govern have pressured the currency.
Beleaguered dollar bulls looked to the U.S. jobs report due at 1230 GMT to turn its fortunes around, at least in the short term. Economists polled by Reuters expect U.S. employers to have added 183,000 jobs in July.
The greenback has also suffered at the hands of a strengthening euro, which hit 2-1/2-year highs this week, boosted by dollar weakness but also the view that the European Central Bank is set to tighten policy amid a brightening economic picture.
The euro added 0.1 percent on Friday to $1.1879, within striking distance of $1.1910, its highest since January 2015, scaled midweek.
Against the yen, the dollar hit a seven-week low in Asian trading, before steading to trade flat at 110.10 yen.
"Expectations for the Fed hiking interest rates within the year are already less than 50 percent and the figure could drop further if the jobs report disappoints, taking dollar/yen towards 109," said Yukio Ishizaki, senior currency strategist at Daiwa Securities in Tokyo.
Fed funds futures implied traders saw a roughly 44 percent chance of a Fed rate hike in December, according to CME Group's FedWatch tool.
Sterling was trading close to a nine-month low against the euro, having hit 90.48 pence the previous day after the Bank of England kept rates on hold, revised down its growth and inflation forecasts and warned of the negative impact from Brexit. [GBP/]
For Reuters 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
(Reporting by Jemima Kelly; Additional reporting by Shinichi Saoshiro in Tokyo; Editing by Catherine Evans)