"We will be getting new forecasts from the ECB and if there is a downgrade to inflation and growth forecasts, it could set the stage for a rate cut in the second quarter," said Ned Rumpeltin, head of G10 currency strategy at Standard Chartered.
"We are bearish on the euro on a fundamental basis and if Draghi sounds dovish, we could see it dropping towards $1.2875.
A more neutral stance may see a rebound but this should remain a short-lived technical rebound."
Morgan Stanley strategists said they expect the euro to decline towards the $1.2880/50 area initially and then towards their $1.2660 target, given downside risks that the euro zone economy faces.
Most analysts say even if borrowing costs for highly indebted euro zone countries like Spain and Italy do not rise, on a more fundamental basis the struggling economy will need a more accommodative monetary policy stance along with a weaker currency to boost growth.
"The Spanish auction shows there is still demand (for its debt) which is positive and a little bit surprising considering what is happening in Italy," said Richard Falkenhall, currency strategist at SEB.
The euro pared gains against sterling, which rebounded from near 2 1/2-year lows against the dollar to last trade up 0.3 percent after the Bank of England decided not to resume its quantitative easing program, then later returned to near flat at at $1.5008.
Many investors had built bets against the pound in recent weeks on expectations that a grim UK economic outlook will prompt the BOE to pump in more liquidity. The BOE's bank rate is at a record low of 0.5 percent.
The euro's and sterling's rise against the dollar saw the dollar index slip from 6-1/2 month highs.
The index, which measures the dollar's performance against a basket of currencies, was last down 0.4 percent at 82.11, having risen to 82.604, its highest since Aug. 20, in late Wednesday trade. It has rallied more than 4 percent from this year's trough of 78.918 plumbed on Feb. 1.