The euro was headed for its sharpest drop against the dollar in a month on Thursday after comments from the European Central Bank chief and a downgrade to the region's growth and inflation forecasts boosted expectations of an interest rate cut. Political chaos in Italy drove Italian bond yields higher and added to losses in the euro.

ECB President Mario Draghi, speaking at a news conference after the bank's decision to keep its main interest rate at 0.75 percent, said there was a wide discussion on interest rates but the consensus was to leave the rates unchanged. The euro fell as low as $1.2960 on Reuters data and was last down 0.7 percent at $1.2971. At current levels, it was on track for the biggest daily percentage fall since November 2. The euro lost 0.9 percent to 106.79 yen. The dollar slipped 0.2 percent to 82.32 yen, not far from a near eight-month high of 82.82 hit on November 22.

Copyright Reuters, 2012