Origin
Use of the adjective bloody as a profane intensifier predates the 18th century. Its ultimate origin is unclear, and several hypotheses have been suggested. It may be a direct loan of Dutch bloote, (modern spelling blote) meaning entire, complete or pure, which was suggested by Ker (1837) to have been "transformed into bloody, in the consequently absurd phrases of bloody good, bloody bad, bloody thief, bloody angry, etc., where it simply implies completely, entirely, purely, very, truly, and has no relation to either blood or murder, except by corruption of the word."
The word "blood" in Dutch and German is used as part of minced oaths, in abbreviation of expressions referring to "God's blood", i.e. the Passion or the Eucharist. Ernest Weekley (1921) relates English usage to imitation of purely intensive use of Dutch bloed and German Blut in the early modern period.
A popularly reported theory suggested euphemistic derivation from the phrase by Our Lady. The contracted form by'r Lady is common in Shakespeare's plays around the turn of the 17th century, and Jonathan Swift about 100 years later writes both "it grows by'r Lady cold" and "it was bloody hot walking to-day" suggesting that bloody and by'r Lady had become exchangeable generic intensifiers. However, Eric Partridge (1933) describes the supposed derivation of bloody as a further contraction of by'r lady as "phonetically implausible". According to Rawson's dictionary of Euphemisms (1995), attempts to derive bloody from minced oaths for "by our lady" or "God's blood" are based on the attempt to explain the word's extraordinary shock power in the 18th to 19th centuries, but they disregard that the earliest records of the word as an intensifier in the 17th to early 18th century do not reflect any taboo or profanity. It seems more likely, according to Rawson, that the taboo against the word arose secondarily, perhaps because of an association with menstruation.
The Oxford English Dictionary prefers the theory that it arose from aristocratic rowdies known as "bloods", hence "bloody drunk" means "drunk as a blood".