The euro sank to a seven-month low on Tuesday, helped by the news that Standard and Poor had cut Italy's credit rating and the state bank of China halted exchange swaps trading with several European banks.
Investors dumped risky assets amid uncertainty that Greece will be able to borrow money from international lenders, Reuters reported.
Australian dollar skidded to a six-week low and South Korea's won plummeted to its lowest for the year.
Teppei Ino, a foreign exchange analyst at Bank of Tokyo-Mitsubishi UFJ in Tokyo said, "The downgrade is clearly negative for the euro, but I don't think anyone at this stage is particularly surprised or shocked that it has happened."
S&P's move to downgrade Italy's credit rating came as a surprise since the market expected Moody, as the first major credit rating, to downgrade the country's credit.
Bank of China, a big market maker in China's onshore foreign exchange market, has ceased currency forwards and swaps trading with several European banks, including French lenders Societe Generale (SOGN.PA), Credit Agricole (CAGR.PA) and BNP Paribas (BNPP.PA), citing the sovereign debt crisis in Europe.
Italy, as one of the largest economy in Europe, has affected the eurozone with debts equal to 120 percent of its GDP over the past three months.
