LONDON - Global stocks steadied on Friday ahead of key US payrolls data, with investors cautiously optimistic that the world might avoid a full-on trade war, while the prospect of more rate hikes in Japan this year drove the yen towards two-month highs.

In a week that started with Donald Trump kicking off a trade war and whipping up market volatility, investors have been wary of making any major moves, given the US president followed through on his threat to impose duties on China, while granting Mexico and Canada a one-month reprieve.

The all-important US jobs report for January is due ahead of the Wall Street open. Economists expect to see 170,000 workers added to nonfarm payrolls last month, but given the potential distortions from spells of cold weather and the California wildfires, the range of forecasts is wide.

"The focus for the financial markets in recent weeks has been very much on Trump and his economic policies, in particular on trade, but today there is the potential for the jobs data to influence Fed rate expectations," Derek Halpenny, a currency strategist at MUFG, said.

"A pretty large divergence from the consensus is still likely required to shift expectations notably but extreme weather at this time of the year has in the past resulted in sharply weaker NFP readings and weather could impact today’s report," he said.

In Europe, the STOXX 600 headed for a seventh straight week of gains, trading flat on the day after having traded at record highs earlier this week, following a spate of strong earnings from the likes of Danish weight-loss drugmaker Novo Nordisk, German software company SAP and French lender BNP Paribas.

European stocks have staged their best performance in a decade against Wall Street in the first six weeks of 2025, but the focus is now on whether those gains can be sustained.

Futures for Nasdaq and S&P 500 were down about 0.1 percent as shares of Amazon slipped on the European market on the back of weakness in the retailer's cloud unit.

On the Asian market, tech stocks staged a rally, powered by Chinese retail investors, who have pounced on the AI theme in the wake of home-grown start-up DeepSeek's breakthrough.

Markets are pricing in 43 basis points of easing this year from the Fed, with a rate cut in July fully priced in, as policymakers are in no hurry to start the rate-cutting cycle again.

The dollar is trading flat on the day against a basket of currencies, having rallied 7 percent last year, as investors priced in a far more aggressive policy stance from the Fed this year, where rate cuts may be few and far between.

Other central banks are cutting interest rates, while the Bank of Japan is gearing up for at least another rate hike this year. Strong wage growth data has beefed up the chances of tighter monetary policy, which has pushed the yen to two-month highs against the dollar .

The yen touched 150.96 per dollar in early trading, its strongest level since December 10 and set for its best weekly performance since late November, with a gain of over 2 percent.

Sterling was 0.1 percent lower at $1.24255 after dropping 0.5 percent on Thursday as the BoE cut interest rates but warned it would be cautious going forward.

In commodities, oil edged up, while gold steadied above $2,800 an ounce, close to record highs.