In U.S. trading on Wednesday, EUR/USD was down 0.70% at 1.2772, up from a session low of 1.2752 and off from a high of 1.2867.
The pair was likely to find support at 1.2737, the low from Nov. 21, 2012, and resistance at 1.3048, Monday's high.
In Italy earlier, the head of the center-left alliance, Pier Luigi Bersani, ruled out forming a coalition.
Election results in February resulted in a political deadlock in the Senate, fueling fears that the leadership stalemate may drag on and undermine economic reforms.
Investors are taking note.
Italy’s Treasury earlier sold a total of EUR6.91 billion in 5- and 10-year government bonds, within the targeted range of EUR5-7 billion.
Italy auctioned EUR3 billion in 10-year government bonds at an average yield of 4.66%, down from 4.83% at a similar auction last month, though turnout was light.
Rome also sold EUR3.91 billion of a new line of five-year bonds at an average yield of 3.65%, up from 3.59% in a February auction.
Yields in secondary markets rose, however, as investors priced in political uncertainty.
Economic indicators on both sides of the Atlantic supported the dollar over the single currency.
The European Commission reported earlier that its eurozone Economic Sentiment Indicator fell to 90.0 in March from 91.1 in February.
Analysts were expecting the index to fall to 90.4 last month.
Meanwhile in the U.S., the National Association of Realtors reported that its pending home sales index slipped 0.4% in February, beyond analysts' calls for a drop of 0.2% though the number still remained at its second-highest level in three years.
Improving U.S. economic indicators have fueled dollar demand lately by fanning sentiments that the Federal Reserve may soon wind down monetary stimulus programs, which weaken the greenback to spur recovery.
The euro, meanwhile, was down against the pound and down against the yen, with EUR/GBP trading down 0.39% at 0.8451, and EUR/JPY trading down 0.61% at 120.72.
Official data released Wednesday revealed that the U.K. economy contracted by 0.3% in the three months to December, in line with preliminary estimates and analysts’ forecasts.
Growth for all of 2012 was revised down to 0.2% from a preliminary estimate for 0.3% expansion.
On Thursday, Germany is to publish data on the change in the number of people employed as well as on retail sales.
The U.S. is due to publish a weekly government report on initial jobless claims and revised data on fourth-quarter economic growth.