The euro fell against its major opponents in the European session on Thursday, after minutes from the European Central Bank's December meeting showed that policymakers expressed concerns over the recent appreciation of the domestic currency that could have an adverse impact on the inflation outlook.
The incoming data indicated a more pronounced near-term impact of the pandemic on economic activity and inflation than previously envisaged, the minutes from the bank's December 9 and 10 showed.
Members broadly agreed that additional monetary policy measures were necessary to preserve favorable financing conditions over the pandemic period.
There was broad agreement with regard to the monetary policy package, which expands and extends the PEPP purchases and recalibrates the TLTRO III conditions so as to underpin economic activity and safeguard medium-term price stability, it showed.
Policymakers argued that the focus on preserving favourable financing conditions implied a move away from a constant monthly pace of purchases towards adjusting the pace according to market conditions, with a view to preventing a tightening of financing conditions inconsistent with countering the downward impact of the pandemic on the projected path of inflation.
Members believed that the expected shape of the recovery now looked very different from the V- and U-shapes expected earlier in the year.
"It was felt that a protracted curtailment of activity might inflict more lasting damage on a number of sectors, with heightened risks of rising insolvencies and unemployment affecting the medium-term outlook and more protracted scarring effects owing to the delay in the recovery," the minutes showed.
The currency was further weighed by a stronger dollar, as the U.S. treasury yields jumped on expectations of a large U.S. stimulus package from the Democratic-led U.S. government.
President-elect Joe Biden is due to outline his proposals for massive fiscal stimulus at 7:15 pm ET.
Data from Destatis showed that the German economy contracted the most since the 2008-2009 global financial crisis in 2020, but most likely avoided a double-dip in the fourth quarter of the year, underpinned by the better performance of the manufacturing sector.
Gross domestic product fell 5 percent in 2020, in contrast to the 0.6 percent rise seen in 2019. This was the first contraction in ten years.
The currency traded mixed against its major counterparts in the Asian session. While it fell against the greenback and the franc, it held steady against the pound. Versus the yen, it climbed.
The euro shed 0.4 percent to hit near a 5-week low of 1.2111 against the greenback. The pair was worth 1.2157 when it closed deals on Wednesday. Should the euro falls further, it is likely to test support around the 1.20 region.
The euro touched its lowest level since November 23 against the pound, at 0.8874. The EUR/GBP pair had ended yesterday's trading session at 0.8911. The euro is seen finding support around the 0.86 mark.
The single currency fell 0.2 percent against the yen, touching a 9-day low of 126.07. The pair had closed Wednesday's deals at 126.27. Next near term support for the euro is likely seen around the 123 level.
The Bank of Japan upgraded its economic assessment of three out of nine regions and downgraded one, according to the latest Regional Economic Report.
Many regions, while noting that their economy had been in a severe situation due to the impact of the novel coronavirus, there were signs of picking up.
The euro was down against the loonie and the kiwi, reaching over a 2-month low of 1.5358 and a 6-day low of 1.6847, respectively. The currency had closed Wednesday's trading at 1.5435 versus the loonie and 1.6931 versus the kiwi. Immediate support for the euro is likely seen around 1.52 against the loonie and 1.66 versus the kiwi.
The European currency dipped to 1.5631 against the aussie, a level not seen since December 2018. The euro-aussie pair had finished deals at 1.5718 on Wednesday. Further fall in the currency may challenge support around the 1.54 level.
Data from the Australian Bureau of Statistics showed that Australia building approvals advanced a seasonally adjusted 2.6 percent on month in November - coming in at 17,205.
That was in line with expectations following the 3.8 percent increase in October.
The euro eased off to 1.0781 against the franc, not far from a fresh 4-week low of 1.0779 seen at 2:45 am ET. At Wednesday's close, the pair was worth 1.0788. The euro is likely to test support around the 1.06 region, if it falls again.