The dollar weakened on Thursday following strong labor market data, while the euro remained near a one-month high versus the greenback after European Central Bank policymakers made comments that kept inflation concerns in focus.

U.S. weekly initial jobless claims fell last week, and layoffs dropped to their lowest in more than 24 years.

Still, rising COVID-19 cases in recent weeks have threatened the economic recovery, keeping the Federal Reserve from pulling back on its massive stimulus. "It was better than expected but it wasn’t enough to change anyone’s views about what is going on, or the pace of tapering or what Friday’s number might be. It was just within the range of estimates," said Marshall Gittler, head of investment research at BDSwiss.

On Wednesday, the ADP National Employment Report was much weaker than expected. On Friday, the U.S. government will report on payrolls for August. Nonfarm payrolls are expected to rise by 750,000, with the unemployment rate anticipated to dip to 5.2% from 5.4%, according to Reuters estimates. The dollar has been subdued on uncertainty over Fed policy.

Tapering Said to Be All in Good Time

Last Friday, Fed chair Jerome Powell said that tapering of its stimulus could begin this year, yet the central bank was in no hurry.

"They’ve pretty much nailed their colors to the mast, they said unless all hell breaks loose they are going to start tapering this year, so we would have to see a massive miss or probably several massive misses for them to delay it," said Gittler.

Other data showed new orders for U.S.-made goods rose in July, while business spending on equipment remained strong, despite supply constraints and spending trends moving away from goods towards services. The dollar index fell 0.303% at 92.229, after falling as low as 92.219, its lowest level since Aug. 5. The euro was up 0.31% to $1.1874.

Other data this week showed inflation rose 3% in the euro zone for August, which helped push the euro to a one-month high of 1.8745, its highest since Aug. 4.

On Thursday, data showed manufacturing remained strong in the region but supply chain issues sent prices higher. Recent comments from European Central Bank hawks including Austria's Robert Holzman and Bundesbank boss Jens Weidman also supported the single currency. ECB President Lagarde said the region was recovering from the pandemic and only needed "surgical" support.