The euro erased all of its recent gains and slumped 1.23% to $1.237 by 3.25pm (London time), following the European Central Bank's decision to cut its benchmark rates.
A better-than-expected US ADP payroll report for June also saw the dollar strengthen, as it cast doubts over QE3. The ECB today cut the refinancing rate by 25 basis points to record low of 0.75%, which lowers the borrowing costs to banks, businesses and consumers. It also cut the deposit rate to 0% in a bid to force banks to lend money instead of parking it at the central bank.
ECB president Mario Draghi said the decision was taken in view of the risks surrounding economic growth and lower inflationary pressures in 2013. Although the rate cut was largely expected, the announcement still exerted pressure on EUR/USD, which saw it drop 84 pips in 30 minutes.