The euro fell more than 1% to its weakest level against the dollar in seven months today after France's rejection of the European Union constitution sparked worries about reform prospects in Europe.
Analysts say the euro zone needs deep reforms because of its anaemic growth and low confidence, but the French vote underscored voters' distrust of a reform drive that could limit social protection.
The euro's initially muted reaction to the French vote on a holiday-thinned Monday turned into a sharp fall today when it crashed through chart support at $1.2385 and $1.2345, its 100-week moving average.
Today's plunge brought the euro to its lowest level in seven months at $1.2312 and reversed a run that had started in mid-October and ended with record highs against the dollar in December. The currency later rallied slightly to $1.2345.
Surveys of euro zone economic, business and consumer sentiment published by the EU Commission today showed a deterioration in May, underlining the gloomy attitude in Europe which helped sink the charter in Sunday's French referendum. They also underlined the need for economic reform and souncd policymaking in the bloc.
Voters are likely to deal another blow to the European constitution tomorrow in the Netherlands, where polls show the 'no' camp is likely to gain 60% of the votes.
Another decisive defeat of the charter was likely to further damage the euro, which was already getting little support on currency trading charts.
However, the European Commission moved to soothe concerns about the euro, saying it was relaxed about the way the currency reacted to the referendum vote. A Commission spokeswoman said Economic and Monetary Affairs Commissioner Joaquin Almunia believed the impact on the currency markets would be temporary and limited.
