The European currency declined sharply in holiday-thinned trade on Thursday as renewed risk aversion prompted investors to shed riskier assets. The EUR hovered near the day's low of $1.4960 down 1.1% for the day. The currency also hit a near 2-month low against the Japanese Yen at 129.52 yen.

The EUR extended losses as ratings agency Standard & Poor's put the credit ratings of four Dubai banks on negative outlook and stock market losses reached 3%. The negative outlook for the banks is due to their exposure to Dubai World, which is seeking a debt standstill. The Dubai World story has weighed heavily on stocks all day, prompting traders to cut back their dollar-funded positions.

The British Pound trimmed early losses but remained 1.4% lower versus the U.S dollar at $1.64. The Sterling also slid 0.4% vs. the EUR to 90.93 pence. Concerns about U.K. bank exposure to Dubai weighed on the Pound, analysts said. There are concerns with regard to the extent of the U.K. banking sector exposure in Dubai which is weighing on Sterling. The underlying picture for Sterling was already fundamentally weak and this news further adds to the bearish sentiment.