The euro hovered a whisker above parity on the dollar on Wednesday ahead of US inflation data, with traders wary a sky-high reading could force it to lows not seen in decades.
Markets are also wary of a surprise from the Reserve Bank of New Zealand, which sets policy at 02:00 GMT, with economists expecting a 50 basis point interest rate hike.
The New Zealand dollar, which hit a two-year low of $0.60 on Monday and inched up to $0.61 in early trade, is vulnerable to a further drop if the central bank's statement is focused more on risks to growth rather than inflation.
The common currency, meanwhile, is down nearly 12 percent this year and fell as low as $1.00 on Tuesday as war on Europe's eastern edge has triggered an energy crisis that has hurt the continent's growth outlook.
Economists forecast headline US inflation accelerated to 8.8 percent year-on-year in June, a 40-year high, which is likely to reinforce expectations of interest rate hikes in response and help the dollar in a market nervous about both rates and growth.
"I think the US dollar will keep increasing if the US CPI is stronger than expected," said Commonwealth Bank of Australia strategist Joe Capurso in Sydney. "There's definitely a very good chance that the euro falls below parity tonight."
The euro already fell beneath parity on the Swiss franc last month and is flirting with a drop beneath its 200-day moving average against the pound.
Weakness in the euro and yen has vaulted the US dollar index higher and it made a two-decade peak of 108.56 this week, hovering at 108.22 in early trade on Wednesday.
The Japanese yen has taken a beating this year as the Bank of Japan sticks with its ultra-easy monetary policy in contrast with tightening nearly everywhere else.
It was under pressure at 136.95 per dollar on Wednesday after hitting its lowest since 1998 on Monday at 137.75. The Australian dollar fell 0.2 percent to $0.67, just above a two-year trough of $0.67 made on Tuesday.
Sterling has also slipped on the stronger dollar and analysts see it adrift in the wake of the resignation of British Prime Minister Boris Johnson last week.
It last bought $1.18, with gross domestic product data due at 06:00 GMT the next hurdle, as traders expect May brought zero growth.
Eight Conservatives are vying to succeed Johnson. "The combination of slow growth, debt and high inflation is likely to prove very tricky for the new Tory leadership," said Rabobank senior strategist Jane Foley.
"Although sterling investors will be hoping for a government less distracted by scandal and more focused on providing coherence around the post-Brexit economy, the jury is still out. Sterling may suffer a lack of fresh direction until the new PM is in place."
The South Korean won was a fraction firmer in morning trade after the central bank raised interest rates by 50 basis points, in line with market expectations.
In Wellington, where the New Zealand central bank has been in the habit of surprising markets, investors are fairly sure a hike is coming and are focused on the tone of the statement.
"Our dovish scenario comprises a 50bp hike, and a statement which emphasises the downside risks to the global economy," said Westpac analyst Imre Speizer, something which he expects could knock the kiwi half a cent lower and push down near-term rates.
(Edited by : Sangam Singh)
