The European single currency sank back under $1.42 on Wednesday as the foreign exchange market reacted nervously to market speculation of a French credit downgrade, which has been denied.
The shared eurozone unit fell as low as $1.4163 at about 1410 GMT. It later pulled back to $1.4178, down from $1.4374 late in New York on Tuesday.
"The market's fretful mood was clearly evident in the way it reacted to rumours of a French bank downgrade," said Rabobank senior currency strategist Jane Foley, in reaction to the euro's steep drop.
"Exposure of French banks to peripheral debt is perceived to be relatively high which has led to French government bonds under-performing core German and Dutch counterparts recently.
She added: "The vulnerability of core Europe appears to be opening up and this is illustrative of the fact that the sovereign debt crisis is entering its most critical phase to date."
France has "categorically" denied rumours it was heading for a downgrade of its AAA credit rating after the United States was stripped of its top rating by Standard & Poor's late last week.
The rival Fitch ratings agency on Wednesday confirmed that France was retaining its top triple-A credit rating amid rumours that it would lose the prized status.
In earlier trade, the euro had risen in value against the greenback, one day after the US Federal Reserve indicated it will keep interest rates on hold near zero for at least two years.