The U.S. dollar erased its early gains against its key counterparts in the European session on Thursday, after first-time claims for U.S. unemployment benefits unexpectedly edged higher in the week ended August 5 and producer prices unexpectedly decreased in July, sparking hopes that the Fed is likely to slow down the pace of further rate hikes.

Data from the Labor Department showed that initial jobless claims crept up to 244,000, an increase of 3,000 from the previous week's revised level of 241,000.

The uptick came as a surprise to economists, who had expected jobless claims to come in unchanged compared to the 240,000 originally reported for the previous week.

Separate data showed that producer price index for final demand edged down by 0.1 percent in July after inching up by 0.1 percent in June. Economists had expected another 0.1 percent uptick.

Excluding food and energy prices, core producer prices still dipped by 0.1 percent in July after creeping up by 0.1 percent in June. Core prices had been expected to rise by 0.2 percent.

The U.S. consumer price inflation for July is due tomorrow, with economists expecting an uptick of 0.2 percent on month.

The greenback rose against its major rivals in the Asian session amid risk aversion on continued escalation in tensions between the U.S. and North Korea.

A statement from the North Korean military called President Donald Trump's warning that the communist nation would face "fire and fury" if it continued its provocations a "load of nonsense."

The greenback was trading at 1.2999 against the pound, down from a 3-week high of 1.2952 hit at 3:45 am ET. If the greenback extends decline, 1.33 is likely seen as its next support level.

Data from the Office for National Statistics showed that the UK visible trade deficit widened to a 9-month high in June.

Trade in goods resulted in a shortfall of GBP 12.72 billion in June compared to GBP 11.31 billion deficit in May.

The greenback pared gains to 0.9653 against the Swiss franc, from an early high of 0.9675. On the downside, the greenback may challenge support around the 0.95 mark.

The greenback eased back to 1.1748 against the euro, heading to pierce its early 2-day low of 1.1770. The greenback is seen challenging support around the 1.22 region.

The greenback reversed from an early high of 110.18 against the yen, edging down to 109.59. Continuation of the greenback's downtrend may see it testing support around the 108.00 area.

Data from the Ministry of Economy, Trade and Industry showed that Japan's tertiary activity remained flat in June.

The tertiary industry activity index held steady in June, following a 0.1 percent drop in May. Economists had forecast a 0.2 percent growth for June.

The greenback retreated to 0.7896 against the aussie and 1.2676 against the loonie, from its early high of 0.7867 and near a 4-week high of 1.2735, respectively. The next possible support for the greenback is seen around 0.80 against the aussie and 1.24 against the loonie.

At 10:00 am ET, Federal Reserve Bank of New York President William Dudley is scheduled to hold a press conference about regional wage inequality at the Federal Reserve Bank of New York.

At 2:00 pm ET, U.S. Federal Reserve's monthly budget statement for July is scheduled to publish.

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