The euro fell broadly on Tuesday after a report cast doubt on the possibility that China would support Italy by buying its government debt, while an auction of Italian bonds showed Rome paying a high price to borrow from the market.
The euro hit a session low of $1.3557, after Market News International reported Beijing may not buy Italian debt. Earlier in the day, it climbed to $1.3696 after the Financial Times had reported that Italy had asked China to buy its bonds.
The single currency fell 1 percent on the day to 104.41 yen. On Monday it had fallen as low as $1.3495, its weakest since February, and a 10-year trough of 103.90 yen.
On Tuesday, the euro recovered from the day's low only to come under more selling pressure after Italy paid higher borrowing costs to sell a new five-year bond.
The auction results indicate that demand for Italian paper has weakened ... so the euro should struggle to extend any gains, said Valentin Marinov, currency strategist at Citi.
Euro sentiment remained negative on mounting fears of a Greek default and its potential repercussions, and recent steep falls in French bank shares due to their sovereign exposure prompting talk of a possible cuts to their ratings.
Shares in BNP Paribas fell 7.5 percent on Tuesday even as the French bank categorically denied comments about its funding attributed to an anonymous source in the Wall Street Journal and described its U.S. dollar funding as solid and strong.
The euro traded around $1.3615 in the aftermath of the Italian auction. Traders cited Mid East names selling the single currency versus the dollar to the session low earlier in the day, while European corporate names stepped in to buy at the day's low.
Technical analysts see more losses for the euro after its short-covering rally on Monday and Tuesday stalled ahead of the top on the weekly Ichimoku cloud at $1.3705 and the 100-week moving average at $1.3739.
The dollar traded 0.2 percent lower versus a currency basket, while it slipped 0.2 percent to 77.08 yen.
The U.S. currency has held in a slim range roughly between 76.40 and 77.60 with markets wary of more yen-weakening intervention by Japanese authorities.
The euro was little changed versus the safe-haven Swiss franc at 1.2030 francs, hovering above the 1.2000 at which the Swiss central bank has vowed to defend the ailing euro. The dollar rose 0.3 percent to 0.8830 franc.
The Australian and New Zealand dollars both struggled against their U.S. counterpart, while the Swedish and Norwegian crowns remained weak after selling off sharply against the euro on Monday.
All four currencies are considered to be relatively high risk as their economies track the broad health of the global economy, and tend to depreciate during times of uncertainty.
The euro has taken a beating on growing speculation Greece may default on its debts, as many investors lose patience with what they consider to be a reactive stance among European officials toward the debt crisis.
German Chancellor Angela Merkel on Tuesday said Europe was doing everything in its power to prevent Athens from defaulting and cautioned that an exit from the euro zone would have domino effects and should be avoided at all costs.
The European authorities will stick to their failing strategy of delaying the inevitable restructuring of Greece's debt until more concrete buffers are in place to attempt to dampen the contagion impact, BTM UFJ analysts said in a note.
The key question is whether the market will give them that time perhaps forcing a more disorderly adjustment.