The euro skidded below $1.10 on Thursday after the European Central Bank cut interest rates and unexpectedly relaunched a quantitative easing programme as well to boost the region's economy.
Investors had expected a rate cut at Thursday's meeting but there was some uncertainty as to whether policymakers would restart a QE programme after some ECB members expressed doubt in recent weeks about the need to relaunch asset purchases.
The euro, after initially rising, dropped sharply to as low as $1.0955, the day's low and down 0.5% on the session, as investors digested news of the rate cut and relaunch of QE. The euro hit a 28-month low earlier this month of $1.0926.
The single currency also weakened against the Swiss franc and Japanese yen.
ECB President Mario Draghi gives his press conference at 1230 GMT, where investors will be looking for signals of further rate cuts and whether policymakers plan to tweak their inflation targeting framework.
Thursday's meeting was the first in a series of major central bank events, with Federal Reserve and Bank of Japan meetings next week.
Stephen Gallo, European Head of FX Strategy at BMO Capital Markets, said that if the ECB prepared the market for significant rate cuts ahead, "that would be quite dovish, quite bearish" for the euro.
Euro/dollar overnight implied volatility had soared to its highest since mid-2018 in the run-up to Thursday's policy statement.
The dollar rose against a basket of currencies and was last up 0.2% at 98.568.
Elsewhere in forex markets, a rebound in risk sentiment supported the Chinese yuan, Australian dollar, export-driven currencies across Asia and emerging market currencies.
After a difficult August in which concerns about a global recession sparked a scramble into safer assets, markets have rallied this month, encouraged by easing trade tensions and by receding fears of a no-deal Brexit for now.
China on Wednesday exempted a basket of U.S. goods from its tariffs, while U.S. President Donald Trump said in a tweet he would delay a scheduled tariff hike by two weeks in October.
The Aussie hit a six-week high of $0.6887 and the offshore Chinese yuan rose as much as 0.5% to a three-week high of 7.0737 per dollar.
The Japanese yen, the go-to safe haven currency for fearful investors, fell to a six-week low against the dollar. The yen breached the 108 mark in Asian trade and was last at 107.80 yen per dollar.
It had hit a seven-month high of 104.46 last month.
Sterling was little changed . The pound rocketed to a six-week high against the dollar on Monday as investors welcomed the British parliament's move to block a no-deal Brexit on Oct. 31.
Despite the more positive mood in risk assets this week, analysts expressed caution about its sustainability.
"The bigger picture is one of a very tense geopolitical environment that is unlikely to be rectified quickly," BMO's Gallo said.