The European single currency fell Wednesday as caution grew ahead of European banking sector "stress test" results and key testimony by the US Federal Reserve chairman, traders said.
In early trading, the shared eurozone unit slid to 1.2867 dollars, down from 1.2881 dollars in New York late on Tuesday, when it had hit a ten-week peak of 1.3029.
Against the Japanese currency, the dollar weakened to 87.06 yen from 87.48 yen on Tuesday.
The stress-test results, due to be published on Friday, are designed to assess the capacity of 91 European lenders to withstand economic or financial crises.
"With only two days to go before publication of the European bank stress tests, investors could see no compelling reason to increase their euro holdings," said Mark Deans, dealing manager at currency specialists MoneyCorp.
"Nobody knows how the market will react to the results. They can be fairly sure that most, if not all of the banks will have passed.
"But they have no idea whether the consensus reaction will be one of joy that the banks are so strong or despair that the tests were obviously not tough enough.
"For many operators that uncertainty alone will have been enough to persuade them that a little position housekeeping was in order."
The dollar meanwhile steadied ahead of testimony by Fed Chairman Ben Bernanke to the Senate banking committee Wednesday.
"Investors will be keeping a keen eye on the US trading session this afternoon, not only to see how well the tech sector performs but also how well the market receives Bernanke's speech to congress on the US economy," said analyst Nick Serff at financial spread-betting firm City Index.
He added: "Investors will be keen to listen to what he has to say after a weak recent bout of economic data could potentially open the door for a more accommodative stance from the Fed."
In London trading, the euro changed hands at 1.2867 dollars against 1.2881 dollars on Tuesday, at 112.02 yen (112.68), 0.8418 pounds (0.8437) and 1.3525 Swiss francs (1.3558).
The dollar stood at 87.06 yen (87.48) and 1.0512 Swiss francs (1.0522).
The pound was at 1.5283 dollars (1.5261).
On the London Bullion Market, the price of gold rose to 1,191.45 dollars an ounce from 1,183 dollars an ounce on Tuesday.
