The euro fell to its lowest in nearly a year against a firmer dollar on Monday after the head of the European Central Bank said he was prepared to take action if inflation dropped further, raising expectations of quantitative easing.
Traders said the euro could come under more selling pressure if a key German business survey falls short of expectations. The German IFO survey, due at 0800 London time, is forecast to read 107 for its business climate index, down from its July reading of 108, as a conflict between Russia and Ukraine takes its toll on Europe's biggest economy.
The euro skidded to $1.3185 in early Asian trade, its lowest since September 2013, from around $1.3246 late in New York on Friday. It was last trading at $1.3190, down about 0.3 percent on the day, amid lower than usual volumes due to a holiday in London.
The euro's woes lifted the dollar index 0.3 percent to 82.564, heading towards its Sept. 5 peak of 82.671. A break above that would take it to levels not seen since July 2013.
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In stronger language than he has used in the past, ECB President Mario Draghi said on Friday the central bank was prepared to respond with all its "available" tools should inflation drop further.
The ECB holds its next policy review on September 4.
"The FX market has interpreted Draghi's statement as meaning that broad-based asset purchases, or quantitative easing, has now become more likely," said Lutz Karpowitz, currency strategist at Commerzbank.
"Euro/dollar has already slipped below the $1.32 level."
Investors will scan euro zone inflation data due on Friday. Analysts polled by Reuters expect annual inflation to have slowed to 0.3 percent in August from 0.4 percent in July. That is well below the ECB's danger zone of 1.0 percent and its target of just under 2.0 percent.