The euro fell to a 29-month low against the USD on Tuesday, as the announcement of early elections in Greece has caused new aggravation of the political crisis.
The ruling coalition on Monday failed to manage in getting enough votes in parliament for its presidential candidate, and, as a result, the country will face early elections next year. Markets fear that the radical left Syriza party could win elections and cancel the agreement on international financial aid to Greece.
Euro at some point during the session touched $ 1.2130, the lowest level since August 2012.
However, the decline in the euro against the dollar is still limited, as the outcome of a parliamentary vote in Greece has already been taken into account in the prices of some traders. Now the single currency is trading almost unchanged against the dollar at $ 1.2144.
However, other market participants have called for caution, pointing out that the political crisis in Greece is just beginning.
"Now there will be seven weeks of public opinion polls, and as we move towards the election, we should also expect that the euro will become more sensitive to changes in the mood of society." Gareth Berry, a UBS strategist, commented.
A decline below $ 1.20 for the euro could become very possible, if the risk of a Greek exit from the euro zone again arise, as it was in 2012, he added.
In addition to the political situation in Greece, the prospect of further easing of monetary policy of the European Central Bank in the next year is also pushing the single currency.
"ECB meeting on January 22, of course, remains an important event for the euro, but the events in the peripheral euro zone countries such as Greece, also need our attention." said Shinichiro Kadota from Barclays.
