The euro declined to two-week lows versus the dollar on Thursday after European Central Bank President Jean-Claude Trichet said euro zone growth risks are to the downside, signaling lower interest rates this year.
Pressure on the euro started earlier in the session as the ECB left benchmark borrowing costs unchanged at 4 percent. Trichet made his comments in a post-meeting press conference.
The euro has come under pressure in the past couple of sessions amid growing signs the economy in the 15-member bloc is faltering. In another rate-setting meeting today, the Bank of England cut borrowing costs citing weak economic outlook.
Trichet is basically giving us the green light to sell some more euros as he talks about downside risks to growth, said Steven Butler, director of FX trading at Scotia Capital in Toronto. The market now thinks it's a matter of when, not if, the ECB will be cutting rates.
Early in New York, the euro was down 0.7 percent at $1.4523 after dropping to as low as $1.4483. The currency has lost almost 2 percent this week, heading for its biggest weekly fall since June 2006.
We're at a bit of a pivot point in the euro here, and if we can get and stay below the $1.4520 area, I think that could open the flood gates a little more, said Butler.
Versus the Japanese currency, the euro fell 0.8 percent to 154.47 yen.
Sterling fell to a two-week low at $1.9448 as the Bank of England cut rates by a quarter percentage point to 5.25 percent, as expected, in a bid to head off a sharp consumer-led slowdown and signaled further gradual policy easing ahead.
In contrast to the United States, Canada and Britain, the ECB has not yet gone down the path of cutting interest rates because of price pressures in the 15 countries using the euro. In January, euro zone inflation hit a record high.
Recent signs of faltering growth in Spain, Italy and elsewhere in the bloc, however, suggest the ECB may soon have to switch its attention to supporting the euro zone economy.
Although Trichet started out talking about inflation, he quickly started talking about the downside to economic risk, said David Watt, senior currency strategist at RBC Capital Markets in Toronto. That was an open invitation to sell euros.
A report showing U.S. weekly jobless claims benefits fell last week had little impact.
Going into the weekend, investors may be looking to any currency-related comments from the meeting of Group of Seven finance ministers and central bankers in Tokyo.
A G7 source told Reuters the wording of this weekend's communique is not yet finalized with regards to foreign exchange but no change is expected from the text of the last meeting in October.
(Additional reporting by Lucia Mutikani and Steven C. Johnson; Editing by James Dalgleish)