The euro got off to a rocky start in Asia on Monday, falling to fresh six-month lows against the greenback and a 10-year trough on the yen as downside momentum picked up pace after several key technical levels gave way recently.
The common currency fell as low as $1.3550 and to around 104.90 yen, as more negative news flow from Europe over the weekend hit already shaky sentiment.
There is little in the way of market-moving data on Monday and nothing concrete came from the Group of Seven finance chief meeting on Friday to distract investors from the euro zone's woes.
Fears about a Greek default rose after senior politicians in German Chancellor Angela Merkel's center-right coalition started talking openly about it.
This came on top of Juergen Stark's surprise departure at the European Central Bank last week, which has highlighted major disagreement among top policymakers on how to tackle the region's debt problem.
Markets are also bracing for possible ratings downgrade on France's top banks, as well as Italy's sovereign rating. Moody's warned on June 17 that it may cut Italy's credit ratings in the next 90 days.
By Friday at the latest, it is likely Italy will have their Aa2 rating from Moody's lowered ... Moody's rating of Italy is currently two notches below AAA, compared with three notches with Fitch and four notches with S&P, this can be seen as catch-up, Richard Kelly, head of European rates and fx research at TD Securities wrote in a note.
The euro was last at $1.3605 in very choppy trade, down from $1.3665 late in New York on Friday. It was seen heading toward support around $1.3410, the 50 percent retracement of June 2010 to May 2011 rally.
Against the yen, the common currency was at 105.21, having fallen as low as 104.90 on EBS, depths not seen since mid-2001.
With the Swiss franc no longer a safe harbour due to Swiss National Bank selling, and the yen also dogged by the danger of intervention from Japan's authorities, the greenback became the best performer among major currencies.
The dollar index hit 6- month highs at 77.580 and was last up 0.3 percent on the day at 77.399. Against the yen, the dollar was at 77.49, holding near a one-month high around 77.85 set on Friday.
For now, your best bet is a higher U.S. dollar against most currencies, but in particular against the euro and the commodity currencies, said Joseph Capurso, strategist at Commonwealth Bank in Sydney.
Indeed, commodity currencies were under pressure on Monday with the Australian dollar falling to a near three-week low around $1.0397. It was last at $1.0404.
Trading was choppy with volumes likely to be thinner than usual as several centres in Asia, including China, are closed for a holiday.
(Editing by Wayne Cole)