By Karen Brettell

NEW YORK (Reuters) - The U.S. dollar gained on Thursday after a Federal Reserve official said that an interest rate increase this year is appropriate, and before Friday’s retail sales data for July.

San Francisco Fed President John Williams told the Washington Post that the U.S. central bank should raise rates this year because of improving labor market conditions and the likelihood that inflation is heading higher.

The U.S. dollar rose 0.24 percent against a basket of six major currencies <.DXY> to 95.878. The greenback gained 0.65 percent against the yen <JPY=> to 101.92 and 0.29 percent against the euro <EUR=> to $1.1142.

The dollar had rallied last Friday after data showed that employers added more jobs than expected in July, but gave up those gains this week as investors see a rate hike in September as a long shot.

“Even though the jobs numbers were good, we have three quarters of very poor GDP...(and) it's very, very unlikely that the Fed raises rates before the (November) election,” said Joseph Trevisani, chief market strategist at WorldWideMarkets in Woodcliff Lake, New Jersey.

“The combination of the two takes it well off the table until perhaps December, and that’s too long of a forward look to hold on to the kind of gains the dollar had from the last payrolls,” Trevisani added.

Thin trading volumes this week as many investor and traders take summer vacations is seen as exaggerating price moves, with little new data available to influence direction.

Retail sales data on Friday is expected to show a 0.4 percent monthly increase in July, according to the median estimate of 64 economists polled by Reuters.

Investors are next focused on Fed Chair Janet Yellen’s speech at the Federal Reserve’s Jackson Hole symposium on Aug. 26.

The New Zealand dollar surged to its highest in more than a year on Thursday after its central bank cut rates by 25 basis points to 2.0 percent, a smaller cut than some investors had expected.

The Reserve Bank of New Zealand said a strong kiwi was driving it to cut rates and that it saw potential for one more reduction by year-end and another by mid-2017.

Traders said that was too slow relative to some expectations of a 50-basis-point cut, going into Thursday's meeting.

The New Zealand dollar rose to $0.7351, its highest since May 2015, before settling back to $0.7204 <NZD=>, up 0.14 percent on the day.

(Additional reporting by Anirban Nag in London; Editing by Jeffrey Benkoe and Chizu Nomiyama)