The euro fell to a five-week low against the dollar on Thursday after the European Central Bank chief flagged downside risks to euro zone growth prospects and said interest rates could be lowered.
The euro fell to $1.2883, down 1 percent, after ECB President Mario Draghi said interest rates are expected to remain at present or lower levels for an extended period in forward guidance to markets. His comments came after the ECB left interest rates on hold, as expected.
Euro zone money market and bond yields fell, leading to differentials between U.S. 10-year Treasuries and similar dated German Bunds widening to their highest since April 2010.
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That reflected a widening chasm between the ECB and the Federal Reserve monetary policy outlooks and is likely to see the euro drop to $1.28 and below.
In sharp contrast to the ECB which discussed a rate cut, the Fed has signaled it is prepared to unwind some of the monetary stimulus in coming months. That is likely to bolster the dollar, traders said.