The euro fell on Wednesday after European Central Bank president Mario Draghi said downside risks to the eurozone economy remained and any discussion of an exit strategy from the ECB’s loose monetary policy was premature.

The single currency was not helped by rising Spanish bond yields and a weaker than expected increase in German manufacturing orders for February.

The euro fell 0.7 per cent against the dollar, at one point touching a three-week low of $1.3107 as the ECB kept its main interest rate at 1 per cent.

Mr Draghi’s dovish sentiments clashed with those shown in the minutes of the US Federal Reserve’s last policy meeting, released on Tuesday.

Only two members of the Federal Open Market Committee cited the need for further monetary stimulus should the US economic recovery falter. This more hawkish outlook was somewhat unexpected after dovish comments over the past month from Ben Bernanke, the Fed chairman.

The dollar index added to its 0.8 per cent gain on Tuesday, climbing a further 0.3 per cent to 79.754 as the greenback made gains against most of its major trading partners.

The dollar was further supported by solid employment data from ADP, the payroll processor. Investors were cautiously awaiting the US non-farm payroll report on Friday. A positive unemployment reading was expected to provide more support for the greenback.

Sterling fell 0.1 per cent against the dollar to $1.589 despite an unexpected rise in the UK’s services purchasing managers’ index reading for March. The pound gained 0.6 per cent against the euro to £0.8271.

The Bank of England’s Monetary Policy Committee is due to announce its rate decision on Thursday.

The only main currency to trade up against the US dollar on Wednesday was the Japanese yen, gaining 0.5 per cent to Y82.41 as declining risk sentiment buoyed the Japanese currency.

Most other Asian currencies fell as reduced expectations of US liquidity hit emerging market confidence – liquidity provided by the Fed is often invested in emerging markets.

The Australian dollar lost 0.7 per cent against its US counterpart to $1.0254, continuing its slide back towards parity. It has lost more than 5 per cent against the dollar since mid-February.

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