By Chelsey Dulaney

The dollar fell Thursday as investors awaited Friday's closely watched U.S. jobs report.

The WSJ Dollar Index, which measures the U.S. currency against 16 others, fell 0.4% to 91.60 even as data released Thursday indicated that the U.S. economy remains strong.

The Institute for Supply Management's gauge of U.S. factory activity came in stronger than expected in November, the latest sign that the manufacturing sector is recovering.

A separate report from Labor Department showed that jobless claims rose last week but remained at a low level consistent with a healthy job market.

The data comes ahead of Friday's monthly jobs report, seen by many investors as the clearest read on the health of the job market.

Investors are already confident that the Federal Reserve will raise interest rates at its meeting this month, but strong U.S. hiring data could lift expectations for further tightening in 2017.

"If key releases continue to come in very strong, markets may begin to consider whether the Fed could deliver additional rate hikes next year," wrote analysts at BNP Paribas in a research note. That would likely boost the dollar, since higher rates make the currency more attractive to yield-seeking investors.

Federal-funds futures, a popular tool for traders to bet on U.S. interest-rate policy, show a 99% probability that the Fed lifts rates this month, according to data from CME Group. Investors see only a 6% chance that rates rise again in February.

In other currencies, the British pound soared to its highest level since October after a U.K. official said Britain could secure access to the European Union's trade market by paying for it. The pound was recently up 0.7% to $1.2589.

The currencies of oil-linked countries also rallied as crude continued to strengthen in the wake of Wednesday's OPEC agreement to cut oil production. The dollar was down 1% against the Canadian dollar and 1.3% against the Norwegian krone.

The euro rallied 0.6% against the dollar as investors assessed signs that the European Central Bank could soon pare back its quantitative easing.

Write to Chelsey Dulaney at

(END) Dow Jones Newswires

December 01, 2016 17:18 ET (22:18 GMT)

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