* ECB says it sees rates at "their present or lower levels"
* Key benchmark rate kept unchanged at -0.40%
* Swiss franc hits another two-year high vs euro
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
(Writes through after ECB change, updates prices)
By Olga Cotaga
LONDON, July 25 (Reuters) - The euro sunk to a two-month low
against the dollar on Thursday after the European Central Bank
said interest rates would stay "at their present or lower
levels" and opened the door for more quantitative easing.
The common currency initially rose, as the ECB kept its key
benchmark rate unchanged at minus 0.40%.
But then it reversed the gains and to drop to the two-month
low of $1.1109 EUR=EBS , down 0.3% on the day and near a
two-year low it reached in May. Investors have interpreted the ECB's message to mean a rate
cut is coming in September, along with other stimulus measures,
as the central bank seeks to lift low inflation and boost
economic growth.
The euro has fallen for five consecutive days, and has shed
2.2% against the dollar so far this month.
ECB President Mario Draghi gives a press conference at 1230
GMT.
WEAK GERMAN DATA
Earlier in the day, the euro was trading lower after a bleak
German Ifo business sentiment survey for July. Hedge funds kept short positions on the euro at $4.39
billion in the week to July 16, around levels seen early this
year, according to the Commodity Futures Trading Commission.
A Deutsche Bank index showed investors have been ramping up
call options holdings in euro/dollar, pushing the amount of call
options to the highest since early 2018, which serves as
evidence that some market participants see the euro gaining.
The Swiss franc EURCHF=EBS , buoyed by expectations of
lower rates in the euro zone, rocketed to a two-year high of
1.0963 against the common currency and was last at 1.0982. The
franc gains bolstered expectations the Swiss would intervene to
weaken the currency and protect their export-reliant economy.
Sebastien Galy, macro strategist at Nordea Asset Management,
said he expected the Swiss National Bank and Danish central
banks to cut rates in September and he saw "a decent chance that
the SNB already reacts post today's ECB meeting."
Elsewhere, expectations of lower interest rates sent the
Australian dollar AUD=D3 to a new two-week low of $0.6963.
The pound remained below $1.25 and not far from the 27-month
low it reached last week, last trading slightly lower at $1.2472
GBP=D3 as new Prime Minister Boris Johnson assembled his
largely Brexiteer cabinet.