The euro fell heavily across the board today after Greek and French elections cast doubt on politicians' commitment to austerity plans aimed at tackling the euro zone debt crisis.
Traders said losses, which saw the common currency hit a three-month low against the dollar, its lowest in 3 and a half years against the British pound and a 2 and a half month trough versus the yen, were likely to be extended in coming days.
In Greece the failure of the two main parties supporting the country's international bailout to secure a parliamentary majority threw into question the future of the programme and potentially Greece's membership of the euro.
In France Socialist Francois Hollande, who has championed a longer time-frame for eliminating the deficit, ousted centre-right incumbent Nicolas Sarkozy in a result that could start a push-back against German-led austerity across the euro zone.
The euro sank to a session low of $1.29552 on trading platform EBS, breaking out of the $1.30 to $1.35 range it has been trapped in since late January. Traders cited selling by fund managers although trade was expected to be muted during the European day due to a UK public holiday.
"The reaction in the foreign exchange market shows if it really comes to the point where it's clear European politicians will step back from austerity measures that will be perceived as very negative by financial markets," said Lutz Karpowitz, currency analyst at Commerzbank.
"In Greece it's maybe the worst outcome we could have had there. It looks impossible to find a government that will be in favour of austerity."
Some strategists said the break below the euro's recent tight range meant it could fall towards the 2012 low around $1.2623. Nomura forecast the euro would fall in the near term to a range between $1.26 to $1.28 before consolidating.For now, the euro has support at $1.2950, a major option barrier and the 61.3 per cent retracement of its rally from its January low to a high in February, although uncertainty over Greece could overwhelm this.
With the majority of votes counted, the conservative New Democracy (ND) and socialist Pasok parties, which were the only parties supporting a bailout programme, were seen falling short of the 151-seat threshold needed for even the most fragile majority in parliament.
While Mr Hollande's victory had been widely anticipated, some market players worried that his focus on growth measures to temper austerity could lead Paris to clash with Germany's insistence on tough deficit reductions.
The euro fell to 80.37 pence against the British pound, a level last seen in November 2008 in the aftermath of the collapse of Lehman Brothers.The common currency hit 103.23 yen on trading platform EBS, its lowest since mid-February.
Meanwhile, Germany warned today that Greece must stick to the reform path it agreed as part of its bailout package with international lenders, a government spokesman said.
"The agreements must be adhered to. They are the best way forward for Greece," Chancellor Angela Merkel's spokesman Steffen Seibert said during a regular news conference.
Agencies