SINGAPORE/SYDNEY: The euro wallowed near two-week lows against the greenback on Thursday, having fallen sharply overnight on the back of more depressing economic news out of Europe that has put the spotlight on the central bank's policy meeting later in the day.
The single currency eased 0.1 percent to $1.3145. It fell as low as $1.3122 on Wednesday after data showed more weakness in Europe's manufacturing sector. Immediate support is seen around $1.3104, the April 23 trough.
With recently downgraded Spain looking to raise funds in the bond market on Thursday, the European Central Bank will be under pressure at its policy meeting to do more to shield weaker euro zone members from additional pain.
"It seems too early for another wave of easing, but that is where the risks are skewed. The outcome is continued downward pressure on EUR/USD," said Sebastian Galy, strategist at Societe General.
But diversification demand out of the greenback had kept the euro far better bid than it should, he said.
"We still like it to break below 1.30 and still expect to be burned out of this view before it does happen," suggesting such a move could take some time.
Spain will hold an auction of three- and five-year bonds on Thursday in the first Spanish government bond sale since Standard and Poor's cut Spain's credit rating by two notches to BBB+ last week.
The ECB meeting and the Spanish bond auction may pose some downside risk to the euro, especially when considering how the market is now positioned, said a trader for a major Japanese bank in Singapore.
Market players had put on short-dollar and long-euro bets after US Federal Reserve Chairman Ben Bernanke hinted last week at the possibility of further monetary easing, the trader said, adding: "We could see a little more downside (in the euro) due to position unwinding."
Renewed pressure on the euro saw the dollar index pop back above 79.000, putting further distance from a two-month trough of 78.603 plumbed on Tuesday.
Against the safe-haven yen, the dollar held steady at 80.16 yen, having retreated from Wednesday's high of 80.61 and bringing in focus a 10-week low of 79.64 set on Tuesday.
Among commodity currencies, the New Zealand dollar saw a bit of action after a sharp jump in the local jobless rate caused markets to price in a small chance of a rate cut this year, a dramatic turnaround from just a couple of weeks ago.
The kiwi slid as far as $0.8040, lows not seen since late January. After trimming some of its losses, the kiwi stood at $0.8054, down 0.4 percent.
A closer look at the jobs data, however, showed the rise in the unemployment rate was due mostly to a surge in the number of people looking for jobs, which is not a bad thing according to some economists.
Still, the market is implying a 40 percent chance of a rate cut at the RBNZ's next policy meeting.
"For the RBNZ, if they are going to do anything this year it will be a rate cut. There's a lot of global risks still, and with the NZ dollar where it is, it makes sense for the market to price in some chance of an easing," said Ben Jarman, economist at JPMorgan.