The euro slumped to a five-month low today after reports that a possible future Italian government would seek debt forgiveness from European creditors and as the dollar resumed its month-long and powerful rally. 

The euro fell as much as half a percent to $1.1783, its lowest since late December.

The drop came after reports surfaced that Italy's anti-establishment 5-Star Movement and far-right League plan to ask the ECB to forgive €250 billion of debt.

The single currency had initially shrugged off the news from Italy but with the dollar restarting its rally, the euro succumbed to selling pressures. 

The euro also fell sharply against the safe-haven Swiss franc, to a five-week low of 1.1799 francs. 

The euro had been a top performer in 2018, with traders betting on prolonged dollar weakness because of the US' trade and budget deficits and investors expecting to allocate more money to the euro zone as its economy strengthens. 

Bets that the Federal Reserve will in fact be an outlier in tightening monetary policy among major central banks and signs the euro zone's economy recovery has peaked has unwound that entire euro strength and the currency is now down 1.8% in 2018. 

The euro's decline today was helped by a resurgent dollar, which hit a five-month high underpinned by gains in long-term US Treasury yields.

The US currency has gained since mid-April and clawed back its 2018 losses after a reassessment of the path of US monetary policy versus other countries. 

Moves by China and the United States to avoid a full-blown trade war have allowed investors to focus on the yield advantage the US enjoys over other countries. 

The dollar rally stalled last week after weaker-than-expected April US inflation data but was lifted yesterday when strong US consumer spending numbers sent 10-year Treasury yields surging to a seven-year peak of 3.095%.