The euro fell against the dollar on Monday and more losses were likely as new governments in Italy and Greece failed to assuage fears about the euro zone sovereign debt crisis.
Italian government bond yields resumed their rise, prompting the European Central Bank to step in, even as former European Commissioner Mario Monti was appointed Sunday to head a new government in Rome in hopes of restoring market confidence.
In Greece, new Prime Minister Lucas Papademos, a former European Central Bank vice president, will have to win Wednesday's confidence vote in his cabinet before meeting euro zone finance ministers in Brussels Thursday, as uncertainty persisted over whether Athens will receive the next tranche of aid to avoid a default.
Like many times before, the Europeans delivered the necessary policy response to avert a meltdown with both Italy and Greece moving to install national unity governments, led by technocrats, said Mark McCormick, currency strategist at Brown Brothers Harriman in New York.
But this is unlikely to be a silver bullet and many questions still remain, he said. Outside of brief short covering rallies, we expect the euro to remain under pressure in the coming weeks and ultimately end the year around $1.29.
The euro traded down 0.8 percent at $1.3644 . It had fallen as low as $1.3623 after breaking below support at its 100-week moving average around $1.3638. It also fell 0.9 percent to 105.11 yen .
Traders cited sizable options expiries at $1.3750. Further resistance is seen near $1.3870, its high set on Nov. 1, with offers from Asian sovereign investors reportedly just above that.
The euro zone common currency briefly pared losses after an auction of 3 billion euro five-year Italian bonds drew decent demand, despite yields hitting 6.29 percent, a high since the euro was introduced in 1999. But the relief was short-lived.
In a sign that the debt crisis may spread further, Spanish 10-year bond yields rose above 6 percent on Monday for the first time since the European Central Bank started to buy the country's bonds in August.
The dollar slipped 0.2 percent to 77.01 yen , after earlier falling as low as 76.811, its lowest since Japan's massive yen-selling intervention efforts on Oct 31.
People are gradually realizing that another round of intervention isn't going to come ... and so bids look like they're gradually being shifted lower, said Geoff Kendrick, currency strategist at Nomura in London.
The head of the International Monetary Fund said Saturday that Japan's recent currency intervention aimed at curbing excess volatility was in line with the spirit of G7 and G20, although concerted action is the most efficient way.
Traders said interventions, particularly unilateral actions such as Japan's, are unlikely to have a long-term impact and the dollar may slip on any signs of problems in the U.S. economy.
Against a basket of currencies, the dollar index stood at 77.461, off a one-month high of 78.165 set last week.
(Additional reporting by William James in London; editing by Jeffrey Benkoe)