The euro fell to its lowest level against the dollar in more than a year on Monday after comments from a European Central Bank official reignited investors' concerns about future stability of the eurozone. Markets have been on the alert for signs of trouble in the 12-nation eurozone since a political crisis enveloped the European Union when two of its founding members rejected the bloc's constitution and talks over its long-term budget collapsed.
Comments from ECB Governing Council member Christian Noyer highlighted these concerns after he said that it was possible for a country to leave the single currency bloc.
This pushed down the euro, which was already suffering under the weight of expectations that rising US interest rates will continue supporting the dollar.
"The main feature is still the positive dollar backdrop," said Stuart Ritson, currency strategist at Rabobank in London.
"But today the key focus is on comments from Noyer which gave the dollar a push against the euro."
Trading was nevertheless quiet with many investors away due to the Independence Day holiday in the United States.
At 1240 GMT the euro traded more than half a percent weaker on the day at $1.1895, after sliding below $1.19 and hitting its lowest level since late May 2004 at $1.1888.
The euro also shed 0.7 percent to trade at 132.68 yen. The dollar fell 0.16 percent to 111.52 yen after hitting an 11-month high of 111.88 yen earlier in the session.
Investors have fretted about the consequences of the political turmoil in the EU after an Italian minister said the country should consider bringing back its old currency, the lira.
Few analysts said there was a realistic chance of the eurozone falling apart, but investors remain jittery and they quickly sold the euro after ECB's Noyer said a country could leave the bloc.
In comments to the French National Assembly Noyer said a country could drop the euro "because countries are sovereign." He also said such an exit would raise questions about a country's EU membership and would not be "without risk."
The political concerns are adding to the gloomy outlook in Europe, where several countries are struggling to see their economies grow.
This contrasts sharply with the US, where Friday's manufacturing data reinforced expectations that the Federal Reserve will continue raising interest rates.
"It's going to take a lot to reverse the dollar's bull sentiment. Noyer's comments may have helped to fuel the trend," said Neil Mellor, currency strategist at Bank of New York.
The ECB is expected to keep rates unchanged at 2 percent on Thursday, and while the Bank of England is seen moving into rate cutting mode as early as August, it is expected to stand pat at 4.75 percent this week.
Steady rises in US rates have sparked a strong rally in the dollar this year, driving it up 12 percent against the euro as Europe's struggling economy and political upheaval have prompted investors to bail out of the single currency.