The euro continued to struggle dropping to a 6-1/2-month low against the dollar on Tuesday with the rebound seen at the start of the week crumbling as forex investors took a sour view of Italy seemingly heading towards another election.
EUR/USD slipped to 1.1589 early on Tuesday, its lowest since Nov. 9.
The single currency had jumped to 1.1728 earlier on Monday after Italian President Sergio Mattarella rejected a vocal critic of the single currency as economy minister.
However, Mattarella's veto angered the anti-establishment parties which had been trying to forge an alliance, prompting them to abandon their coalition plans and setting the stage for fresh elections.
Financial markets grew concerned that the fresh elections, which could take place as early as August, could be seen as a quasi-referendum over Italy's role in the European Union and euro zone and could end up strengthening euroskeptic parties even further.
Such worries have resulted in a big sell-off of Italian debt and a surge in safe-haven German bond prices. As a result, the yield spread between 10-year Italian and German bonds has reached its highest since December 2013.
USD/JPY fell more than 0.25 percent at 108.79 after rising briefly to 109.830 on Monday.
EUR/JPY fell sharply to 126.11 from a high of 127.27, its lowest since late June 2017.
The Australian and New Zealand dollars held steady at 0.7545 and 0.6935 respectively against the greenback.
