The euro fell more than 1 percent on Thursday, surrendering most of the gains it made against the dollar following China's devaluation of the yuan last month, after European central bankers cut economic growth targets and left interest rates unchanged.
The dollar rallied, helped by weekly jobless data signaling a strong U.S. labor market the day before Friday's August jobs report, which may be crucial for Federal Reserve policymakers considering raising interest rates.
The European Central Bank lowered its forecasts for inflation and economic growth, citing a slowdown in emerging markets and weak oil prices. ECB President Mario Draghi warned conditions could worsen.
The revisions raise doubts about the effectiveness of the ECB's $1 trillion-euro asset-buying program, which is aimed at stimulating growth and boosting consumer prices after years of low inflation.
Draghi said inflation risks remained to the downside, mainly because of low crude oil prices, and that the bond-buying program would run at least another year.
"Draghi at his press conference raised the risk of additional monetary support by the central bank," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "We were expecting some dovish comments, and he delivered."
During Draghi's news conference, the euro dropped 1.4 percent against the dollar to touch a two-week low of $1.1108. It was last off 0.81 percent at $1.1125 after earlier this week reaching a high of $1.1332 as investors spooked by markets turmoil in China moved heavily into the euro and yen.
The euro also sank against the yen and was last down 1.34 percent at 133.47 yen.
Weekly unemployment claims data bolstered optimism about U.S. economic growth, as did a government report showing the U.S. trade deficit fell in July to a five-month low on a broad increase in exports.
The Institute for Supply Management reported its services industry index slipped to 59 last month from a reading of 60.3 in July, which was the highest since August 2005.
Meanwhile, the Swedish crown surged to a six-week high of 9.3755 crowns per euro after Sweden's central bank kept rates unchanged.