The euro fell to a near nine-year low against the dollar in Asia Monday after the head of the European Central Bank hinted that it will unleash fresh easing measures to counter weakness in the eurozone.
The single currency's losses added to a sell-off on Friday that came in response to the publication of Mario Draghi's interview with German business daily Handelsblatt.
The unit plunged to $1.1865 at one point Monday, the lowest since March 2006, before bounding back to $1.1946. However it is still well down from $1.2002 in New York and the $1.2097 on Wednesday before the New year break.
It also dropped to 143.92 yen from 144.58 yen in US trade, while the dollar slipped to 120.27 yen from 120.46 yen.
In the interview Draghi said deflation was a threat to the eurozone and the ECB needs to be prepared to counter it. He added that the risk that the ECB will not be able to move inflation higher "has increased compared to six months ago".
Political turmoil in Greece was also weighing on the euro.
With a general election set for later this month the head of the left-wing Syriza party said Saturday that if he won he would start "necessary change" in Europe and end painful austerity policies.
Markets a roll back of measures required under an IMF-EU bailout of the country could further weaken the eurozone economy.
“The reasons to be selling the euro were pretty clear over the weekend: Draghi being a step closer to QE (quantitative easing) and deepening concerns about the Greek political situation,” Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney, told Bloomberg News.
“The euro was so close to such a keenly watched round number as $1.20 that we didn’t need any fresh news to tip us over the cliff today.”
Lacklustre US data also hit sentiment.
The Institute for Supply Management reported Friday the manufacturing sector slowed for the second straight month in December, partly due to falling crude prices and a labour slowdown at West Coast ports.
Eyes are on the release on Friday of US jobs data, with a good reading likely to reinforce the view that the Federal Reserve will hike interest rates around the middle of the year.