The euro fell to a new 14-month low Friday, just under $1.25, on fears of public unrest in the euro zone and on growing concern over the credibility of the European Central Bank.
The euro was recently down at $1.2457 from $1.2531 in New York late Thursday, according to EBS. The single currency was also down against the yen, at ¥115.47 from ¥116.13.
Although both Spain and Portugal have now announced austerity measures to help reduce their budget deficits, the moves have failed to boost confidence in the euro as investors now worry about the threat of civil strife in these countries, as well as in Greece. Spain's largest trade union has already called for the public sector to go on strike over the austerity measures.
Analysts are also mulling the consequences of the ECB's decision last weekend to start buying sovereign bonds in an effort to boost market liquidity and prevent contagion from Greece's debt crisis. There is rising concern that the central bank has compromised its independence as well as skewed pricing in euro zone bonds, which is now determined more by the ECB than by the open market.
"The ECB exposes itself to potential conflicts and is thus damaging the euro," said Ulrich Leuchtmann, head of currency strategy with Commerzbank in Frankfurt.
The euro did manage to stage a small bounce early in the day, largely on profit-taking but this quickly disappeared as the single currency was sold back down to its new low at $1.2471.
The dollar, meanwhile, fell against the yen to ¥92.49 from ¥92.68, but was up against the Swiss franc at 1.1225 francs from 1.1178 francs. And the pound fell to $1.4563 from $1.4614.
The U.K. currency came into the firing line as the EU made it clear that it will go ahead with hedge-fund regulation despite objections from the U.K. This, along with plans for the U.K.'s own banking regulations, could prove damaging to London's position as a financial center.
Sterling has been under selling pressure for most of this week, hurt both by the political uncertainty surrounding the country's new coalition government and by concern that proposed spending cuts won't be enough to reduce the country's budget deficit fast enough to avoid a credit downgrade.
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