By Peter Nurse 

- The U.S. dollar rose in early European trade Friday, trading near a one-month high after healthy employment data pointed to a strong labor market ahead of the widely-watched official jobs report.

At 02:55 ET (07:55 GMT), the , which tracks the greenback against a basket of six other currencies, rose 0.2% to 105.075, not far off Thursday's near one-month peak of 105.27.

The index was on track for a weekly gain of more than 1.6%, its largest since September.

Data released Thursday showed the number of Americans filing for jobless benefits dropped to a three-month low last week, while the revealed that private employment increased by 235,000 jobs last month, far exceeding expectations.

This sets up the official jobs report, due later in the session, which is expected to show that the labor market remained healthy in December, with 200,000 added and the unchanged at 3.7%.

"Signs of strength in the U.S. labor market are understandably being read as prolonging both the Fed's concern with tight labor markets and its preoccupation with suppressing inflation," said analysts at ING, in a note.

fell 0.1% to 1.0517, with the euro continuing to show weakness, despite rising in November, increasing by 1.1% compared with the previous month. The pair fell 0.8% to touch a three-week low in the previous session.

fell 0.1% to 1.1898, after falling to a six-week low on Thursday, with traders deserting sterling on the belief that a weakening U.K. economy will prevent the from being as hawkish as its counterparts in the rest of the world. 

"We expect sterling to remain soft and any stronger U.S. jobs data could be worth a move to 1.1780/1800," ING added.

rose 0.6% to 134.20, with the yen continuing to retreat from a seven-month high hit earlier this week on speculation that the will reverse its ultra-loose monetary policy in the near future.

The risk-sensitive edged higher to 0.6752, while fell 0.3% to 6.8616, with the yuan jumping to a four-month high as traders bet on a strong economic boost from China reopening its borders this month.