* Italian bond yields drop on revived coalition deal
* Data dump including payrolls to keep dollar gains capped
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, June 1 (Reuters) - The euro consolidated gains on Friday and is set to break a six-week losing streak following a drop in Italian bond yields after a revived coalition deal between Italy’s two anti-establishment parties reduced concerns of immediate elections.
The single currency plunged earlier this week and Italian bond yields soared, with 2-year bond yields posting their biggest one-day jump in 26 years on Tuesday on fears that fresh elections in the euro zone’s third biggest economy could strengthen the hand of anti-establishment parties.
But the past two days have seen some stability with the euro recouping its losses thanks in part to renewed efforts to form a government and avoid new elections, ending three months of political turmoil.
Analysts were also getting more cautious of the dollar’s recent move higher — the greenback hit a 6-1/2 month high against a basket of its rivals earlier this week — on trade war fears and rising concerns the U.S. economic momentum may soften.
“At these levels, I think the dollar is nearly priced to perfection and we think the euro should see a rebound from later this year,” said Paul Baird, head of fixed income at Newton Asset Management, a subsidiary of BNY Mellon which manages $49.8 billion in assets globally.
On Friday, the euro was flat at $1.1691 against the dollar. On a weekly basis, it is set to eke out a small 0.3 percent gain, snapping six consecutive weeks of losses.
The dollar edged higher at 94.02 after posting its biggest monthly rise since November 2016 in May against a basket of rivals. It headed back towards a 6-1/2 month high of 95.03 hit earlier this week.
Risk appetite was on the back foot after the Donald Trump administration slapped tariffs on steel and aluminium imports from the EU, Mexico and Canada, raising risks of a full blown trade war.
Canada and Mexico retaliated against the United State’s decision while the European Union had its own reprisals ready to go..
The Canadian dollar stood at C$1.2936 to the U.S. dollar , after falling 0.65 percent the previous day.
The Mexican peso hit a 15-month low of 20.050 to the dollar on Thursday and last stood at 19.85 per dollar.
A heavy slate of data on Friday is also expected to keep investors on the sidelines. The US jobs report for May is expected to show almost 190,000 jobs added, keeping the Fed on track to raise rates later this month. Flash PMIs in euro zone, United States and Britain are also due. (Reporting by Saikat Chatterjee; Additional reporting by Hideyuki Sano in TOKYO; Editing by Peter Graff)