LONDON, Sept 6 Reuters The pound trod water on Friday, ahead of U.S. employment data that could intensify volatility later in the day as investors figure out whether the Federal Reserve will be forced to deliver an outsized rate cut this month or not.

Sterling , which is heading for a 0.3 rise against the dollar this week, was trading 0.1 lower on the day at 1.3169. It touched a oneweek high of 1.31925 earlier in the day.

The euro was up 0.1 against the pound at 84.35 pence, while the yen a major beneficiary this week of safehaven flows strengthened, leaving sterling down 0.5 on the day at 187.90 yen .

Economists surveyed by Reuters expect 160,000 workers were added to U.S. nonfarm payrolls in August, after July39;s 114,000 increase. It was this report which ignited concern that the U.S. economy is slowing rapidly, which prompted a major selloff in risk assets in early August.

Futures show traders are pricing in as many as 100 basis points in Fed rate cuts over the remainder of this year, compared with less than 45 bps from the Bank of England . This anticipated gap has helped fuel a rally in recent weeks in sterling at the expense of the dollar.

Currency market action on Friday was firmly dictated by the dollar ahead of the payrolls numbers.

The dollar is weak as we lead up to todays report and it is lower vs. all other G10 FX currencies since the most recent bout of risk aversion, which did not boost the dollar as a safe haven. This suggests that when the…