HONG KONG, (Reuters) - The euro slipped on Monday after German Chancellor Angela Merkel's conservatives were routed in elections in a key state, while Asian shares slipped as turmoil in the Middle East and Japan's nuclear crisis left investors with little appetite for riskier assets.
“Clearly risks are rising, but not sufficient to tip the euro over the edge yet. There's also a range of support on the way down, it's not going to collapse even if it falls through $1.40,” said Greg Gibbs, a strategist at RBS in Sydney.
The euro last traded at $1.4046 , compared with $1.4065 late in New York on Friday. Early in the session, it was marked down to around $1.4020.
Merkel's Christian Democrats lost power on Sunday in the rich state of Baden-Wuerttemberg, where anti-nuclear sentiment had been mobilised by radiation leaks from an earthquake-stricken nuclear plant in Japan.
The loss of the regional stronghold could limit Merkel's ability to pass legislation as her coalition centre-right government deals with nuclear power, military action in Libya and the euro zone debt crisis. While erosion of Merkel's clout at home weighed on the euro, prospects of a European Central Bank rate rise was an important element holding up the single currency, Gibbs said.
Along with its gains versus the euro, the dollar firmed against the yen , helped by Friday's comments from a U.S. central bank official who said the Federal Reserve is poised in the “not-too-distant future” to begin rolling back its super loose monetary policy to avert inflation.