Investing.com - The euro steadied on Tuesday, having rebounded from 20-month lows set in the previous session after Italian voters rejected constitutional changes backed by the government and the subsequent resignation of Prime Minister Matteo Renzi.
EUR/USD was last at 1.0773. On Monday, the single currency ended up 1.86% against the dollar, after falling as low as 1.0507 in early trade, the weakest since March 2015.
The euro was supported by indications that Italy would not hold early elections after Renzi’s resignation, with many analysts thinking it more likely that a caretaker government will be put in place until an election in 2018.
But the outlook for the single currency continued to remain clouded amid fears over the financial health of the Italy’s ailing banking sector.
Italy’s banks are weighed down by bad loans and could possibly require a full-blown bailout from the European Central Bank.
Investors also remained cautious ahead of the ECB’s policy meeting on Thursday.
The ECB is seen as likely to announce an extension of its quantitative easing program, but any indication that it could begin tapering asset purchases could offset the effect of extending its stimulus program.
The dollar edged lower against a basket of six other major currencies, with the U.S. dollar index dipping to 100.07, not far from Monday's low of 99.84, its lowest level since November 15.
The dollar was steady against the yen, with USD/JPY at 113.96, still off the nine-and-a-half month high of 114.83 touched last week.
Demand for the dollar continued to be underpinned by expectations that the Federal Reserve will hike interest rates this month.
According to Investing.com's Fed Rate Monitor Tool, 100% of traders expect the Fed to raise interest rates at its December 13-14 meeting.
The Australian dollar was lower, with AUD/USD falling 0.41% to 0.7441 after the Reserve Bank of Australia kept interest rates on hold Tuesday, but indicated that the economy could experience a small contraction in the third quarter.
Data on Australian third quarter gross domestic product is due to be released on Wednesday.
Meanwhile, sterling pushed higher, with GBP/USD up 0.2% at 1.2756.