By Saqib Iqbal Ahmed and Chibuike Oguh

NEW YORK (Reuters) -The dollar dropped against the euro on Thursday after the European Central Bank indicated a possible end to its year-long policy easing cycle and U.S. data pointed to softening labor market conditions amid mounting economic headwinds from tariffs.

The ECB cut interest rates for the eighth time in a year on Thursday, acknowledging inflation was under control and turning more pessimistic about economic prospects amid risks of a trade war with the United States.

While not confirming a pause, ECB President Christine Lagarde said after the rate cut that the central bank was getting towards the end of its monetary policy easing cycle as it responded to economic shocks including the war in Ukraine and the energy crisis.

The euro was last up 0.18% after rising to as high as $1.1495, a fresh six-week high against the dollar, not far from the more than 3-year high of $1.1573 touched on April 20.

"The euro-dollar has taken off here in response to Lagarde saying the ECB is getting towards the end of its rate cutting cycle," said Shaun Osborne, chief currency strategist at Scotiabank.

The dollar's softer tone was an extension of its recent weakness, with the U.S. currency down nearly 11% against the euro for the year.

"This just broadly reflects the softening in the broader dollar sentiment here and may well continue into non-farm payrolls tomorrow," Osborne said.

"We are also seeing a little bit of volatility around news of President Trump talking to Xi, in a first sign of high-level communication between the White House and Beijing in quite some time," Osborne said.

Chinese President Xi Jinping on Thursday held talks with the U.S. president by phone, China's state-run news agency Xinhua reported, as bilateral relations have been strained by trade disputes.

The dollar was also pressured by data showing that the number of Americans filing new applications for unemployment benefits last week increased for a second straight week, pointing to softening labor market conditions amid mounting economic headwinds from tariffs.

The claims data have no bearing on the Labor Department's closely watched employment report for May, scheduled to be released on Friday, as it falls outside the survey period.

Nonfarm payrolls likely increased by 130,000 jobs last month after advancing by 177,000 in April, a Reuters survey of economists showed. The unemployment rate is forecast being unchanged at 4.2%.

"Evidence of a cooling in labour markets is beginning to build, lowering expectations ahead of tomorrow’s non-farm payrolls report and putting downward pressure on yields," Karl Schamotta, chief market strategist at Corpay, said.