As the euro-zone crisis has lurched from bad to worse, the euro has felt the full force of investors' panic.
The currency yesterday slid close to a three-month low versus the US dollar as it once again crashed through the $1.30 floor.
It was heading for its eighth straight session of losses against the greenback. Instead, investors have sought refuge in currencies deemed safe. The Japanese yen rose against all its 16 major peers.
The euro's downward spiral has reflected growing jitters about Greece as political gridlock throws up uncertainties about its future in the euro zone. Uncertainty is also clouding the outlook in France, where Francois Hollande, the president-elect, is set for a collision course with Germany about how to tackle the debt crisis.
"Until it becomes clearer that an accident in Greece can again be avoided, risk appetite is unlikely to recover," Christoph Rieger, the head of interest-rate strategy at Commerzbank in Frankfurt, wrote in a note yesterday.
Analysts say how events unfold in Greece will be critical to the performance of the euro in the coming weeks. Eyes will be trained closely on which political forces gain power, whether they adhere to the country's bailout terms and whether Greece runs out of cash. Even if the country does exit the single-currency bloc, as some observers are speculating, it is still unlikely to be a positive for the euro, say analysts at Emirates NBD.
"The euro would likely head lower, in line with our long-standing view looking for it to decline to $1.20 in [the] coming months, with our one-year view still looking for it to fall to $1.15 amidst mounting economic, social and political uncertainty caused by the debt crisis," Tim Fox, the chief economist of Emirates NBD, wrote in a note yesterday.
The euro dropped 0.2 per cent to $1.2980 during trading yesterday.
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