The euro wallowed near one-week lows on Thursday, with trading subdued in the wake of the US holiday and ahead of a widely expected interest rate cut by the European Central Bank later in the day. The ECB is due to announce its decision at 1145 GMT, followed by a news conference by ECB President Mario Draghi.
A Reuters poll of economists showed the majority expect the central bank to cut its main rate by 25 basis points to 0.75 percent, but they were evenly split on whether the ECB will lower its deposit rate. "A 50 basis point move would be a positive surprise, but no one should count on that happening," said Masashi Murata, a currency strategist in Tokyo at Brown Brothers Harriman.
Any hints that emerge on how the ECB plans to respond to Europe's debt crisis, such as another long-term refinancing operation (LTRO), will be even more key to market direction than an interest rate move, he said. A reactivation of bond-buying under the ECB's securities markets programme (SMP) is viewed as unlikely for now, although many investors would like to see that plan used again to cap the yields of debt-burdened countries.
The euro traded at $1.2528, having fallen around 0.7 percent on Wednesday in subdued trading, with US markets closed for Independence Day. Adding to pressure on the euro, surveys showed all of Europe's biggest economies are in recession or heading in that direction.
Support is seen around $1.2495, the 76.4 percent retracement of Friday's dramatic rally sparked by the European Union's agreement to allow euro zone rescue funds to be used to stabilise bond markets without extra austerity measures and recapitalise banks directly.
Also pressuring the European unit overnight was heavy selling against the Swedish crown, which surged to an 11-1/2 year high after the Swedish central bank kept interest rates on hold at 1.5 percent.
Traders said the absence of stronger hints on future rate cuts by the Riksbank saw the crown squeeze higher, pushing the euro down some 1 percent to as far as 8.6495 crowns, lows not seen since late 2000. The euro was trading not far above a fresh historical low against the New Zealand currency of NZ$1.5541 set on Wednesday, and held near record lows against the Australian dollar. It bought A$1.2202, close to record nadir of A$1.2124 hit in early February.
The Australian dollar was close to recent highs at $1.0256 after Australian trade data showed a smaller-than-expected deficit, partly due to a record month of exports to China. The Aussie climbed as high as $1.0320 on Wednesday to its best level since early May after upbeat retail sales data.
The euro also lost ground against its Japanese counterpart, slipping to 99.99 yen from Wednesday's session high of 100.65 yen and below its 14-day moving average at 100.10 yen. Against the yen, the greenback sank back below the 80 yen level as Japanese exporters sold into a move above it, inching back down to 79.81 with a US bank said to be a buyer. On the downside, support was seen at last Friday's low of 79.08. Overall, the safe-haven dollar outperformed, with the index tracking it against six key currencies gaining 0.5 percent to 82.169.
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