SINGAPORE, July 5 Reuters The U.S. dollar was on the defensive near threeweek lows on Friday ahead of payroll data that will likely influence the outlook for rates, while the pound was firm as the Labour party was poised to win a massive majority in the UK general election.

Sterling was last at 1.27705, trading in a tight range during Asian hours but just shy of the threeweek high of 1.27765 touched on Wednesday.

Centreleft Labour has already won more than 326 of the 650 seats in parliament, with an exit poll suggesting it would capture about 410 and affording investors some certainty after years of market volatility under the Conservatives.

The pound is up 1 for the week, its best weekly performance since midMay and remains the strongestperforming major currency against the dollar this year with a gain of 1.2.

In the bigger picture, fiscal policy will become a greater issue for the markets, said Kyle Rodda, a senior analyst at Capital.com.

Rodda said the Labour party will use the mandate to increase taxes and consolidate government spending, a move that could help the Bank of England in containing inflation.

For now, the markets will just be happy to get an election over and done with, and that should benefit market sentiment.

The yen rose 0.4 to 160.63 per dollar, for second straight day of gains something that has not happened since the start of June.

The currency is crawling slowly away from the 38year low of 161.96 on Wednesday but traders remain on…