The currency dropped sharply within minutes of the announcement, initially falling from $1.1820 to $1.1725, to trade at 1.1638 by 4.30pm.
ECB president Mario Draghi said: “This decision has been taken in the presence of a strong economy with increasing uncertainty,” related to rising trade tensions between the US, Europe and China.
Mr Draghi made the announcement at a news conference following the bank’s meeting to discuss eurozone monetary policy.
The euro had initially risen during the meeting, after the ECB said it would phase out its financial crisis-era stimulus programme for the 19-country region by the year-end.
The bank said that the stimulus programme’s bond purchases would be halved to €15bn per month from October.
The purchases would then be wound up completely after December.
Mr Draghi said: “With longer term inflation expectations well anchored, the underlying strength of the Euro area economy and the continuing ample degree of monetary accommodation provide grounds to be confident that the sustained convergence of inflation towards our aim will continue in the period ahead and will be maintained even after a gradual winding down of our net asset purchases.”
The ECB appeared to balance the phase-out of the stimulus programme with the pledge that the withdrawal of support for the economy would be gradual, and that interest rates could stay low for longer than the second quarter of next year if needed.
The bank’s bond-buying stimulus programme, also known as ‘quantitative easing’ (QE) is credited with having helped the eurozone economy to recover from the region’s financial crisis.
As part of the programme, the ECB began buying up assets from commercial banks in March 2015, initially to the tune of €1.1trn.
The ECB also downgraded its eurozone growth forecast for this year to 2.1% from 2.4% previously, while upgrading its inflation forecast to 1.7% from 1.4%, largely as a result of rising oil prices.
“Uncertainties related to global factors, including the threat of increased protectionism, have become more prominent, the risk of persistent, heightened financial market volatility warrants monitoring,” said Mr Draghi.
Alongside the euro’s drop, the pound was also trading down against the dollar at $1.3304 after US retail sales figures were given a boost.
Jennifer McKeown, chief European economist at Capital Economics said: “The ECB’s announcement that it will end its asset purchases in December is probably a little bolder than markets had expected, but this is tempered by the pledge to keep interest rates on hold for more than a year.”
Dean Turner, UK Economist at UBS Wealth Management said: “Today’s meeting came at a challenging time for the ECB, considering the political turbulence in Italy and the string of soft data coming out of the eurozone in recent months. Yet, it seems that the ECB has decided to look through some of the short-term concerns.
“With the ECB signalling that interest rates are unlikely to budge until the autumn of next year, investors’ immediate focus seems to be on this forward guidance for interest rates, rather than the end of QE, which is reflected in the sharp drop in the euro.
“Notwithstanding the initial reaction, we maintain our view that the end of QE will underpin the euro and lead to upwards pressure on Eurozone bond yields.”
The ECB’s move towards ending QE comes a day after the US Federal Reserve decided to raise interest rates for the second time this year, and hinted at further rises.
Mr Draghi said the bank’s policy has helped create millions of new jobs, with unemployment falling from over 12% during the crisis to 8.5%.