The euro rose back above the $1.16 level on today as it recovered after falling to multi-month lows the previous day as fears over political turmoil in Italy roiled markets.
EURUSD rose up to 1.1599 by 08:17 GMT, pulling away from Tuesday’s 10-month lows of 1.1509.
The single currency has fallen around 4.1% against the dollar so far, this month.
Financial markets were hit after Italy’s populist parties abandoned their bid to form a coalition government after the country’s president vetoed their choice of finance minister over his threats to pull Italy out of the euro zone, raising the prospect of fresh elections.
Investors fear that repeat elections could be seen as a referendum on Italy’s role in the European Union and its future in the euro area and may end up bolstering euro sceptic parties even more.
Market sentiment received a boost following reports that the two mooted coalition partners, Five Star and the Lega party, could make a new attempt to form a government.
But investors remained wary as political risk in the euro area remained elevated. In Spain, Prime Minister Mariano Rajoy is facing a vote of no confidence in the government on Friday, after a corruption case involving members of the ruling party.
A ratcheting up of the trade row between the U.S. and China also kept investors on edge after U.S. President Donald Trump announced that the U.S. would be proceeding with $50bn worth of tariffs on Chinese in imports. Meanwhile, EU exemptions on U.S. tariffs due to expire this Friday.
The euro was higher against the traditional safe haven yen, with EURJPY climbing 0.51% to 126.14, off Tuesday’s lows of 125.06, a level not seen since late June.
The euro also gained ground against the Swiss franc, with EURCHF up to 1.1490 at 08:21 GMT, after falling 1% on Tuesday.
The dollar was a touch lower against the yen, with USDJPY last at 108.73, holding above the five-month lows of 108.10 hit in the previous sessions as risk aversion boosted the Japanese currency.
The pound pushed higher, with GBPUSD adding on 0.28% to trade at 1.3285 after hitting a six-month low of 1.3203 on Tuesday, pressured lower by political risk in the euro zone.
The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was down 0.38% to 94.45, pulling back from Tuesday’s seven-month highs of 94.98.