Euro drops in early European trading after French reject EU constitution

The euro dropped against the U.S. dollar Monday after French voters rejected the European Union by a clear margin.

In early European trading, the 12-nation euro stood at US$1.2526 - off a low of US$1.2511 in Asia earlier Monday but below the US$1.2575 it bought in New York late Friday.

Ahead of the vote Sunday, analysts had said that fears of a "No" largely were factored into trading last week, when the euro fell to seven-month lows against the dollar. Still, the constitution faces another tough test when the Netherlands votes Wednesday.

The British pound was unchanged Monday at US$1.8228. The dollar rose slightly against the Japanese yen, climbing to 107.92 yen from 107.84 yen.

France's decision to reject the EU constitution helped lift the dollar, but because the results were widely expected, it didn't cause the euro to plunge.

"The French 'no' did not come as a surprise for market participants," said Joerg Kraemer, chief economist at HVB Group, adding that the currencies likely to be most affected were those of the bloc's 10 new eastern members, as well as aspirant Turkey.

"While many commentators suggest that recent euro weakness is primarily a function of uncertainty surrounding the French referendum on the proposed EU Constitution, we find the euro weakness entirely consistent with cyclical developments," said Robert Sinche of the Bank of America.

Weakness in Germany and Italy, in particular, has kept euro zone growth weak.

About 55 percent of voters in France opposed the EU constitution - the first rejection in Europe. Polls in the Netherlands show even more resistance to the constitution, and EU leaders were scrambling to control the damage.

Nine other countries, including Germany, have approved the document - mostly in parliamentary votes.

MATT MOORE, AP Business Writer