The euro fell to a two-year low against the U.S. dollar on July 6 after a report indicated that U.S. employers hired at a dismal pace in June to stoke strong risk aversion and a flight to safe havens, which put recent central bank interest rate cuts in stark relief. The report added to concerns that the debt crisis of Europe is shifting the U.S. economy into low gear.

The weak U.S. jobs data came a day after interest rates were cut down by the European Central Bank, further dampening the euro's appeal and China and the Bank of England announced more monetary easing.

The loosening of monetary policy in Europe and China diminishes the relative interest rate advantages held over the greenback with U.S. interest rates already near zero. "Risk premiums come down and at some point interest rates don't compensate for sovereign risk," said Paresh Upadhyaya, director of currency strategy at Boston-based mutual fund company Pioneer Investments.

"Politically and economically, it is not the environment for the euro to rally ... In a week or a month's time, it can easily get back down towards below $1.2280 and maybe even head towards $1.20," Kathleen Brooks, research director at FOREX.com said in London.

"You might expect the yen to gain against the U.S. dollar - as you're seeing now - as it will be the preferred safe-haven currency for today," said John Doyle, senior strategist at Tempus Consulting in Washington.

The euro fell 1 percent to a two year low of $1.2264 before rebounding to $1.2282, off 0.88 percent on the day. The dollar rose to a 1-1/2-year high against the Swiss franc.