The euro dropped to a two-month low versus the yen on Monday, as German Chancellor Angela Merkel's attempts to form a three-way coalition government failed.
Merkel, whose conservatives were weakened after they won an election in September with a reduced number of seats, said she would inform the German president that she could not form a coalition, after the pro-business Free Democrats (FDP) withdrew from talks.
The common currency fell in early Asian trade following the breakdown of the German coalition negotiations, but eventually trimmed some losses.
Against the Japanese yen, the euro was last off by 0.6 percent on the day at 131.43 yen. The euro briefly dropped to 131.16 yen, its lowest level since mid-September.
The common currency lost 0.5 percent versus the dollar to $1.1735, retreating from a one-month peak of $1.1862 market on Wednesday the previous week.
The euro's retreat helped lift the dollar to hold steady at 112.01, having set a one-month trough of 111.89 yen earlier on Monday.
The near-term focus will be on how European markets respond to the political developments in Germany, according to Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.
Against the yen, the dollar was almost flat at 112.01, after earlier dropping as low as 111.89, its weakest since Oct. 16.
The dollar index, which tracks the U.S. currency versus a basket of six rival peers, gained 0.3 percent to 93.955.