The euro fell against the dollar and hit a record low against the Swiss franc on Monday, while more losses could be in store on concerns the eurozone debt crisis will worsen. While a stalemate in Washington over raising the nation's $14.3 trillion borrowing limit was also high on investors' worry list, most were betting some deal will be reached. That helped support the dollar against major currencies.
By contrast, in Europe, anxiety over a Greek default and contagion risks remained high as Italian and Spanish bond yields rose sharply and the cost of insuring peripheral eurozone debt against default soared to record highs.
"Considering what Europe is facing and will face, I think the euro might be a little bit overvalued," said Fabian Eliasson, vice president of currency sales at Mizuho Corporate Bank in New York. "I don't see the problem going away any time soon."
The euro last traded down 0.3 percent at $1.4107, recovering from a session low of $1.40145 set on trading platform EBS as stocks came off session lows. Technical analysts see support at the 200-day moving average at $1.39121.
The euro hit a record low of 1.13650 Swiss francs on EBS, before bouncing back to last trade at 1.1538, flat on the day.
As Germany presses for significant private-sector involvement and the European Central Bank insists it will not accept defaulted bonds as collateral, policy-makers are struggling to reach a consensus.
Against the yen, the euro lost 0.4 percent to 111.56, while the dollar slipped 0.1 percent to 79.03 yen.
The dollar also fell to a record low against the Swiss franc at 0.8034 on EBS. It rebounded to 0.8176 as some dealers covered their short positions.
The franc continues to be the safe haven of choice as investors seek liquidity and relative safety on concerns about fiscal health in both Europe and the United States.
Negotiations over the US debt ceiling are running dangerously close to an August 2nd deadline. After that, the United States will be unable to pay its bills if the country's borrowing limit is not raised. The lack of progress has led two ratings agencies to warn of a credit rating downgrade in the event of a US default. Such a move, some traders fear, could send interest rates soaring and erode the US dollar's reserve currency status.
Although no deal has yet been made, US Treasury Secretary Timothy Geithner was optimistic, saying top Republicans had taken "default off the table."
The top Republican in the Senate, Mitch McConnell, submitted a plan that would essentially make Obama the one with the power to raise the debt limit. A vote is planned in the Senate later this week but prospects are uncertain in the House, where the Republicans hold sway.