By Laura Matthews

NEW YORK (Reuters) -The dollar was little changed against most majors on Thursday in choppy trading after economic data offered some relief over the health of the U.S. economy to a market looking for clues about the path of the Federal Reserve rate cuts.

U.S. services sector activity was steady in August, but employment gains slowed, remaining consistent with an easing labor market.

Meanwhile, U.S. private jobs growth hit a 3-1/2-years low in August and data for the prior month was revised lower, potentially hinting at a sharp labor market slowdown.

By contrast, the number of Americans filing new applications for jobless benefits declined last week as layoffs remained low.

“The services numbers relieved some angst about the strength of the economy,” said Adam Button, chief currency analyst, at Forexlive in Toronto. “There are no signs of a hard landing in any of the numbers. The market is hanging on every data point right now.”

The dollar was last up 0.1% against the yen at 143.85. The yen touched a one-month high earlier in the day, in part due to safe-haven demand, but also on the view that imminent rate hikes from the Bank of Japan, while other central banks cut rates, could lift the Japanese currency due to narrowing rate differentials.

Softening labor market data has been underpinning expectations of a supersized rate cut from the U.S. central bank.

Global markets have been on edge and stocks, in particular, have been badly bruised after softer-than-expected U.S. data this week reignited growth concerns in the world’s largest economy.

U.S. nonfarm payrolls data, due on Friday, could heighten volatility, strategists said.

The options market shows traders are preparing for potentially big moves in currencies on Friday. Overnight implied options volatility – a measure of demand for protection – is at its highest since the banking crisis of March 2023 for the euro and at its highest in a year for the yen.

LABOUR MARKET

Some of this is a function of the large fluctuations in stocks, bonds, currencies and commodities this week.

The latest trigger for investor nerves was data on Wednesday that showed U.S. job openings dropped to a 3-1/2-year low in July, suggesting the labour market was losing steam, with the figures coming after Tuesday’s ISM manufacturing survey which remained in contraction territory.

“Everybody’s focused on tomorrow,” said Marvin Loh, senior global market strategist, State Street in Boston. “Whether that one number is going to really provide the granularity that the economy is either going into a recession or continuing to chug along with the soft-landing type discussion is the push and the pull across the asset classes.”

The dollar index, which measures the U.S. currency against six rivals, was flat at 101.27.

The euro was also little changed at $1.1087, and sterling rose 0.1%, to $1.3161.

The Australian dollar pared earlier losses to trade steady on the day at US$0.6723, but was some distance away from a more than two-week low hit on Wednesday as it drew support from a still-hawkish Reserve Bank of Australia.

Traders now see a 39% chance of the Fed cutting rates by 50 basis points when it meets this month, and have priced in more than 100 bps worth of cuts by the end of the year.

The determining factor could be the nonfarm payrolls report, which is expected to show the U.S. economy added 160,000 jobs in August, compared with July’s 114,000 increase. The unemployment rate is forecast to ease slightly to 4.2%.

In other currencies, the New Zealand dollar rose 0.1% to US$0.6207, while the Chinese yuan was last seen at 7.0948 per dollar.

(Reporting by Laura Matthews in New York; Additional reporting by Amanda Cooper, Rae Wee in Singapore; Editing by Muralikumar Anantharaman, Sharon Singleton, Alison Williams and Christina Fincher)

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