NEW YORK: The euro fell to a three-week low against the dollar on Wednesday after European Central Bank President Mario Draghi said the euro zone economic outlook is subject to downside risks relating to the debt crisis and commodity prices.
The euro was already under pressure after Spain's borrowing costs jumped at a bond auction and on reduced expectations of further monetary stimulus in the United States after Tuesday's release of Federal Reserve meeting minutes.
Draghi's comments came in a news conference after the ECB announced it was holding interest rates at record lows, as widely expected.
The ECB president also told reporters that any talk of an end to loose monetary policy is premature given the poor state of the bloc's economy.
"An overly cautious ECB would keep the euro biased broadly lower," said Omer Esiner, chief market analyst with Commonwealth Foreign Exchange in Washington, D.C.
The single currency dropped more than 0.6 percent on the day against the dollar to $1.31411. At the trough of $1.3105, it was the lowest since mid March.
"There are inflationary pressures coming from higher oil price, higher indirect taxes in the short term, but inflation expectations are firmly anchored in the medium term," the ECBD's Draghi said.
"Given the present conditions of output and unemployment, which is at historical high, any exit strategy talking for the time being is premature."
SPAINISH AUCTION
Spain sold 2.6 billion euros of government bonds, toward the lower end of its target range and at higher yields than at previous auctions. Its borrowing costs had been expected to rise given growing concerns about its public finances.
"The market focuses back on Europe after Spain's disappointing bond auction," said Camilla Sutton, chief currency strategist at Scotia Capital. "A key theme is how strict austerity and low growth can turn into a euro negative and vicious cycle."
In contrast to the outlook for the euro zone, minutes published on Tuesday showed only two of the policy-setting FOMC's 10 voting members saw the case for additional monetary stimulus. The statement sparked a sell-off in US Treasuries, with the 10-year yield last trading around 2.24 percent.
Technical analysts highlighted the euro's break below its 100-day simple moving average at $1.3155 as a bearish sign.
The euro will likely waver throughout the year near its current levels against the dollar, although it might weaken a few cents more until the currency bloc escapes a bout of mild recession, a Reuters poll showed.
The common currency also struggled against the yen, falling more than 1 percent on the day to 107.88 yen, its lowest since March 13. It was last at 108.14 yen.
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