The U.S. dollar advanced against its most major counterparts in the European session on Thursday, on growing hopes of aggressive rate hikes by the Federal Reserve to control inflation.

Cleveland Federal Reserve President Loretta Mester said that the fed funds rate will be required to rise above 4 percent by early next year.

Mester added that she does not anticipate the Fed cutting interest rates in 2023 and that rates would remain elevated "for some time."

The non-farm payrolls data, due on Friday, is expected to show a further improvement in the labor market.

The CME Group's FedWatch is suggesting a 72.5 percent chance of a 75 basis point rate hike this month.

Data from the Labor Department unexpectedly showed a modest decrease in first-time claims for U.S. unemployment benefits in the week ended August 27.

The report showed initial jobless claims edged down to 232,000, a decrease of 5,000 from the previous week's revised level of 237,000.

The dip came as a surprise to economists, who had expected jobless claims to inch up to 248,000 from the 243,000 originally reported for the previous week.

The greenback rose to 1.0001 against the euro, off an early low of 1.0054. If the greenback rises further, 0.96 is likely seen as its next resistance level.

The greenback firmed to 1.1552 against the pound, a level unseen since March 2020. The next possible upside target for the currency is seen around the 1.14 level.

Against the loonie, the greenback jumped to a 1-1/2-month high of 1.3194. The greenback is likely to challenge resistance around the 1.33 level.

The USD/CHF pair was trading higher at 0.9794. The greenback had touched a 1-1/2-month high of 0.9809 against the franc in the previous session. Next key resistance for the currency is seen around the 1.00 level.

In contrast, the greenback retreated to 139.06 against the yen, 0.6846 against the aussie and 0.6117 against the kiwi, after rising to a 24-year high of 139.68, 1-1/2-month highs of 0.6792 and 0.6075, respectively in the Asian session. The greenback is seen finding support around 120.5 against the yen, 0.70 against the aussie and 0.63 against the kiwi.

U.S. ISM manufacturing PMI for August and construction spending for July are set for release in the New York session.

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