The euro's relevance as a reserve currency may be diminished by the sovereign risks in the region, Royal Bank of Scotland Group said.
"The problems in Greece will be much harder for the market to gloss over this year and there is not a solution which appears good for the euro," Greg Gibbs, a foreign-exchange strategist in Sydney, wrote in a report dated yesterday.
"Either the core countries come to its aid, which spreads the risk across the euro zone and sends a bad message to other member states. Or they cut Greece loose, which triggers massive risk of default, much wider spreads on all sovereigns. While the euro might look like a tidier smaller unit, its relevance as a reserve currency would diminish.
"Sentiment may well have turned more permanently for the euro," he said.
"A break below the recent lows near $1.426 may trigger another leg lower to the next key support near $1.375."
The euro advanced 0.2 per cent to $1.4405 as of 7.16am in London.
Bloomberg