The euro pared losses after touching its lowest level in more than four years against the dollar on concern European measures to reduce fiscal deficits will undermine the 16-nation region's recovery.
Sterling fell to a 13-month low as a report showed London home prices fell for the first time this year and chancellor of the exchequer George Osborne set out a timetable for UK government departments to identify savings.
The dollar and yen rose against most of the major counterparts as European budget turmoil discouraged demand for higher-yielding assets.
"There's a loss of confidence in the euro," said Paul Robinson, a currency strategist at Barclays in London. "Investors are asking if the euro-zone crisis is similar to the 2008 banking crisis."
The euro area's finance ministers are meeting in Brussels today. European Central Bank president Jean-Claude Trichet has called for a "quantum leap" in policy making.
"Short-term there is no obvious reason to think the euro is going to stop declining here," said Sean Callow, a senior currency strategist at Westpac Banking Corp in Sydney. "Growth is going to be extremely weak for a long time. Positioning clearly isn't holding the euro back."
The euro dropped to $1.2344 as of 12.30pm in London, after earlier touching $1.2235, the lowest level since April 18th, 2006.
Mr Trichet called for reform of the way euro-zone countries determine spending and defended his decision to buy bonds from debt-saddled countries such as Greece and Portugal.
"There is a need for a quantum leap in the governance of the euro area," he said in an interview with Der Spiegel magazine published on the ECB website. "There need to be major improvements to prevent bad behavior, to ensure effective implementation of the recommendations made by peers and ensure real and effective sanctions in the case of breaches."
The common currency fell 3.1 per cent last week against the greenback as speculation grew that the euro zone will break up.
Futures traders last week increased bets to a record that the euro will fall following a €750 billion bailout to contain a sovereign-debt crisis.
The number of wagers by hedge funds and other large speculators for a decline in the 16-nation currency rose on May 11th to 113,890 contracts more than those anticipating a gain, according to Commodity Futures Trading Commission data. It was the third-consecutive week that the amount climbed to a record.
"The fact that European leaders have failed to restore confidence in the single currency is worrying," Khoon Goh, a senior economist at ANZ National Bank Ltd. in Wellington, wrote in a note to clients today. "Markets are now focusing on the tough austerity measures that will come and the impact that will have on the euro-zone economy."
However, ECB governing council member Ewald Nowotny said the euro's recent drop is of "no specific concern".
"We have seen a wide variety of fluctuations of the euro's foreign-exchange rate," Mr Nowotny, who heads Austria's central bank, said in Berlin. "The actual fluctuations are of no specific concern. What the ECB has always said is we have a goal of price stability, which means we have no explicit exchange-rate target. But we are interested in orderly developments."
The euro has declined 14 per cent this year after Greece's fiscal crisis undermined confidence in Europe's common currency.
"In parallel to buying in the secondary market, we will also do sterilising actions so there will be no net monetary effect," Mr Nowotny said.
Spain's underlying turned negative in April for the first time on record. Core consumer prices, which exclude energy and fresh food, fell 0.1 per cent from a year earlier, after rising 0.2 per cent in March, the National Statistics Institute in Madrid said on May 14th.
The pound weakened for a fourth day against the dollar as Britain's biggest property website said the average house price in the UK capital fell 0.4 per cent in May from April to £420,203. In the year, prices rose 5.7 per cent, Rightmove said in an e-mailed statement.
Sterling fell to $1.4335 from $1.4536, after reaching $1.4252, the least since March 31st, 2009. The yen gained 2 per cent to 131.78 per pound from 134.40.
"The Bank of England has been taking a very cautious outlook on the economy," said Yoh Nihei, a Tokyo-based trading group manager at Tokai Tokyo Securities. "The trend for the pound is likely to be downward."
The UK central bank said last week that downside risks to economic growth "have increased somewhat", citing the impact of the fiscal crisis in Europe.
This morning, Mr Osborne said his emergency budget will be held on June 22nd.
Speaking to reporters in London today, he said there is a "strong economic case" for £6 billion of "immediate" cuts to tackle Britain's budget deficit.
"We're in no doubt this action is advisable" and is necessary to provide economic stability and secure economic recovery, Mr Osborne said.
Bloomberg