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The dollar hung back from a four-week high against major peers on Friday as investors looked ahead to a key jobs report that could influence the path for U.S. interest rates.

Sterling traded slightly higher after recovering knee-jerk losses following the Bank of England's decision to downshift to a quarter point rate hike on Thursday.

The yen hovered near the middle of its trading range this week as traders tried to gauge the Bank of Japan's tolerance for higher yields following last week's surprise policy tweak. [JP/]

Meanwhile, the risk-sensitive Australian dollar strengthened amid a rebound in Chinese stocks and U.S. equity futures.

The U.S. dollar index, which gauges the currency against a basket of six counterparts, edged 0.07% lower to 102.38 in early Asia. On Thursday, it had pushed to the highest since July 7 at 102.84 at one point, but lost steam later in the day with the monthly nonfarm payrolls report looming on Friday.

However, the dollar edged higher to 142.64 yen, aided by the rise in long-term Treasury yields to a nearly nine-month high at 4.198% overnight.

Sterling rose 0.17% to $1.27305, after dipping as low as $1.2620 on Thursday for the first time since June 30 after the BoE decision, despite a warning that rates were likely to stay high for some time.

The euro ticked up 0.06% to $1.09585.

"The FX market is not particularly interested in extending positions, particularly in front of the payrolls report," said Ray Attrill, head of FX strategy at National Australia Bank, noting that the dollar has not extended gains to the degree that might be expected based on the rise in Treasury yields.

At the same time, "unless or until what's been happening with Treasury yields reverses, there's no meaningful prospect of dollar-yen coming down here, unless we see a very dramatic deterioration in risk sentiment," he added.

In terms of the BoE, "the message that rates are not coming down probably anything like as quickly as might be the case in the U.S. or elsewhere is a positive force for sterling, providing that the UK economy can avoid a recession," Attrill said.

The European Central Bank last week signalled it may take a break at its next meeting in September as inflation continues to fall and growth weakens.

Meanwhile, the Aussie climbed 0.5% to $0.65815, continuing its recovery from Thursday's two-month low of $06514.

That was despite the Reserve Bank of Australia saying in its quarterly monetary policy statement that inflation is heading in the right direction, dimming the prospect of further rate hikes.

Instead, the risk-sensitive currency focused on the positive vibes from equity markets, with Hong Kong's Hang Seng rebounding 1.6% and U.S. Nasdaq E-mini futures pointing 0.5% higher.

The Aussie has been sliding since mid-July amid declining commodity prices and the slow recovery of Australia's key trading partner, China, from three years of pandemic restrictions.