The euro slid towards last week's nine-month low versus the dollar on Monday after European Union leaders failed at the weekend to agree on a long-term budget, plunging the bloc into deeper crisis. The euro fell as low as $1.2182 in Asian trade before recovering to $1.2210 by 1125 GMT, still down around more than half a percent on the day.
The EU leaders extended the deadline for ratifying a proposed constitution two weeks after French and Dutch voters rejected it - which at the time triggered a wave of euro selling.
The summit breakdown, which could slow political and monetary integration in the 25-nation bloc, pushed the euro down by as much as one cent in Asia, halving gains made on Friday following a record US current account deficit.
"They didn't get an agreement over the weekend so the euro opened a lot lower," said Lee Ferridge, senior proprietary trader at Rabobank.
"With the 'no' votes, the budget problems and the growth issues - it will drift lower this week."
The euro hit its lowest level since August at $1.2014 last Wednesday and faces key technical and option-related support at $1.20, a break of which could unleash a flood of further euro selling.
The dollar was up a third of a percent on the day at 108.89 yen. The euro fell a quarter percent against the yen at 132.95 yen.
Eurozone policymakers welcome the euro's fall of nearly 10 percent this year as it helps exports, and are pressuring the European Central Bank to cut interest rates to kick-start the sluggish economy.
Calls for lower rates in the eurozone contrast with the rising rates in the United States, a factor underpinning dollar gains as investors pursue better returns.
Federal Reserve Bank of Minneapolis President Gary Stern sees no reason for the Federal Reserve to stop raising interest rates now as the economy expands at a desirable pace, Japan's Nihon Keizai Shimbun newspaper reported on Monday.
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