The euro struggled near a two-month low as the euro zone debt crisis showed signs of spilling over from Ireland to other countries even after Ireland unveiled an ambitious austerity plan.
Traders said Portugal and increasingly Spain are seen as potentially in need of help while Dublin's belt-tightening plan has come under fire for sticking to economic growth assumptions, unveiled earlier this month, seen as too optimistic.
Trade was thin due to the Thanksgiving holiday in the US today. Some market players said the fall in the euro as well as in the Aussie reflected short-covering in the US dollar on rising US yields and before the holiday.
Europe's 16-nation currency headed for its fourth straight drop against its U.S. peer, which would be the longest streak of losses in more than three months, as LCH Clearnet demanded clients place larger deposits to trade Irish debt.
The yen was near the strongest in two months against the euro on speculation China will take fresh measures to combat inflation. The Swiss franc dropped to parity with the dollar.
"The euro is under pressure and there's more to come," said Neil Mellor, a currency strategist in London at Bank of New York Mellon Corp, the world's biggest custodian of financial assets.
"Real-money flows are leaving the periphery and have been for quite some time."
The euro traded at $1.3330 at 12.20 pm in London from $1.3335 in New York yesterday, when it slumped to its weakest level since September 22nd. It hasn't declined on four consecutive days since August 24th. The euro bought 111.39 yen from 111.40. Japan's currency was at 83.57 per dollar from 83.54 yesterday.
Some traders said worries that private investors may have to accept losses, or "haircuts", in any euro zone sovereign debt restruturing from 2013 - a proposal put forward by Germany - could push up the premium investors will ask for holding euro zone periphery debt, hurting the euro.
"If Europe adopts the debt haircut option, even Spain could be forced to ask for help as soon as December," said a trader at a Japanese bank.
The yield spread of Portuguese and Spanish government bonds over benchmark German Bunds hit a euro-lifetime high yesterday.
Technically the currency looks vulnerable after breaking below key support of $1.3364, a 38.2 percent retracement of its rally from June to early November and its August high and other major support around $1.3333.
"I thought the support of the August peak would hold. Looking at the way the euro's falling, it may be in a downtrend for a long term," said a trader at a Japanese bank.
The currency has also fallen below support from the bottom of the cloud on the daily ichimoku chart, which stood at $1.3371, sending a major bearish signal. The last time it fell through the ichimoku cloud was December 2009, preceding its six-month-long downtrend.
For now, its 100-day moving average, now just above $1.33, and its 200-day moving average around $1.3134, may offer some support.
Few see a return to the four-year low of $1.1876 marked in June in the wake of debt crisis in Greece as yet.
"The low was hit when there was no safety net in Europe and markets were expecting the Fed to exit from its loose policy. As the dollar is also under pressure from the Fed's quantitative easing, it's hard to think the euro will fall to around $1.2," said BOTM's Uchida.
Reuters/Bloomberg