The euro fell to a two-year low against a broadly firmer dollar on Thursday after the minutes of a Federal Reserve meeting dampened the prospects of more US monetary stimulus in coming months, weighing on riskier assets and growth-linked currencies.
The safe-haven yen also advanced after the Bank of Japan limited itself to tweaking its asset buying programme rather than easing monetary policy outright in contrast to last week's policy easing moves by central banks in the euro zone, Britain and China.
With speculators and long term currency investors worried about Europe's lack of progress in tackling its debt crisis, the euro fell to $1.21725, its lowest since mid-2010, and past a reported options barrier at $1.2200.
Traders reported more option barriers down to $1.2000 which could slow the euro's drop. Nonetheless, Europe's debt woes, the European Central Bank's (ECB) decision to cut interest rates and Wednesday's minutes from the Fed's June meeting all helped the dollar index to a two-year high of 83.796.
"Every single central bank except for the Fed is easing, and until that happens we expect the dollar to stay supported," said George Saravelos, G-10 currency strategist at Deutsche Bank.
The euro has shed 5.7 percent so far this year, already exceeding the losses it chalked up in 2011, with losses accelerating after last week's cut by the ECB.
The unprecedented cut in the deposit rate meant that banks will earn nothing for parking excess funds. Besides, the zero rates would encourage investors to sell the low-yielding euro and buy higher-yielding riskier currencies.
Lee Hardman, currency strategist at Bank of Tokyo Mitsubishi said since the ECB cut its deposit rate to zero, the euro had become "the funding currency of choice" for higher-yielding assets. He added that this left the euro vulnerable in times of both improving and deteriorating market sentiment.
The dollar's overall strength saw it hit a 19-month high against the Swiss franc of 0.98560 francs on the EBS trading platform.
Data showing an unexpected drop in Australian employment in June also added to worries about the outlook for global growth, increasing risk aversion and causing the higher-yielding Australian dollar to fall sharply.
The Australian dollar fell more than 1 percent against the US dollar to hit a two-week low of US $1.0112. It fell nearly 2 percent against the yen to 80.17 yen.
The Bank of Japan held its policy rate in a range of zero to 0.1 percent, though it did tweak its asset-buying and lending programme. It maintained the total size at 70 trillion yen but said it would buy more short-term securities and reduce the amount it offers under fixed-rate market operations.
The yen gained broadly, quickly erasing brief falls immediately after the decision. The dollar was down 0.6 percent at 79.24 yen, holding above chart support at the 200-day moving average around 79.01 yen.
The euro fell 1 percent to hit a 5-week low against the yen of 96.560 yen, falling past stops at 95.75 yen.