The euro fell towards a two-month low today after the European Union criticised Italy's spending plans, raising fresh concern about a conflict within the common currency zone.
Political wrangling over the budget in heavily indebted Italy has seen the euro weaken over 1% against the dollar this week.
The European Commision on Thursday sent Rome a letter calling a draft budget an "unprecedented" breach of EU fiscal rules, the first step of a procedure that could end with Brussels rejecting the budget and fining Italy.
The single currency fell to an intra-day low of $1.1433 - close to a two-month low of $1.1432 hit on October 9. It latest recovered to trade 0.1% up on the day at $1.1464.
Italy is the third-largest economy of the 19-country euro zone, and a crisis there could unsettle the entire bloc.
Analysts said that the euro is already suffering considerably, and that could get worse if the crisis really gets going, especially as the dollar is now providing attractive yields.
Investors have been pricing in the possibility that the tussle between Italy and the European Union will force the European Central Bank to be more cautious in removing stimulus.
Euro zone money markets are now not fully pricing in an interest rate rise from the ECB until October 2019. Earlier this week, they were projecting an increase next September.
Meanwhile, sterling rose after EU negotiator Michel Barnier said a Brexit deal with the UK was 90% done but that hurdles remained.
Sterling rose to a day's high versus the dollar of $1.3038, trading broadly flat.
It also strengthened 0.1% against the euro to 87.9 pence.
A global risk-off mood has prevailed this week amid tension between the US and Saudi Arabia, Italy's budget woes and USSino trade conflict.
China's economic growth in the third quarter slowed to 6.5%, its weakest since 2009 and below expectations, as a campaign to tackle debt risks and the trade war with the US weighed on the economy.