The euro fell on Tuesday to a10-month low after a selloff in Italy's debt market drove investors to dump the single currency.
A deepening political crisis in Italy, the eurozone's third biggest economy, provoked selling of Italian assets and the euro that was reminiscent of the eurozone debt crisis of 2010-2012, Reuters reported.
But the impact was not felt as keenly on currency markets as in Italian government bonds which suffered their worst day in more than 25 years.
Italy's president has set the country on a path to fresh elections by appointing a former International Monetary Fund official as interim prime minister, with the task of planning for snap polls and passing the next budget.
Investors fear a polarizing election campaign which could deliver a deeply euro sceptic government, threatening the bloc's cohesion.
The euro has fallen 4% this month amid a resurgent dollar and rising concerns over the eurozone's political and economic situation.
The currency slipped on Tuesday below $1.16 for the first time since November 2017 to hit the 10-month low of $1.151 and weakened significantly against the safe haven Swiss franc and Japanese yen.
The Danish crown, which is pegged to the euro, strengthened 0.1% against the single currency in a further sign of a fallout from Italy.
"A surging dollar has weakened the euro but now it is all about risks from Italy and the impact the crisis there could have on the European Central Bank's monetary policy," said Commerzbank analyst Ulrich Leuchtmann.
"The underlying problem here isn't Italy, though, but a fundamental question about the eurozone, a political experiment lacking a fiscal union which can fail if fair growth and wealth are not achieved," he said.
Financial markets expect the ECB to wind down its €2.55 trillion ($2.95 trillion) stimulus program by the end of this year and raise its policy interest rate towards the middle of next year.
Weaker-than-expected economic data out of the eurozone, however, has raised questions about that.
The euro is set for its biggest monthly drop in more than three years, according to Thomson Reuters data.
