News of the downgrade came as negotiations between Greece and private creditors on a debt swap deal broke down, raising the risk of a messy Greek default. Markets are also worried the euro zone's bailout fund, EFSF, might lose its AAA rating with S&P as well.
The euro slid 0.5 percent against the yen to 97.13 yen , hurt by selling by Japanese exporters, and hit a fresh 11-year low of 97.04 yen at one point on trading platform EBS.
Against the dollar, the euro dipped 0.3 percent to $1.2641, hovering near a 17-month low of $1.2624 hit last week, and well below an intraday high of $1.2879 that had been hit on Friday.
There was talk of stop-loss offers in the euro at levels around 97.00 yen and $1.2600.
"I think the pressure is going to remain, certainly in the early part of the week. I wouldn't say it came out of the blue, but it knocked what was looking to be a relatively bullish market temporarily back down to the lows," said Andrew Robinson, FX analyst for Saxo Capital Markets in Singapore, referring to the outlook for the euro versus the dollar after the S&P downgrades and the snags in the Greek debt talks.
While the possibility of a short-covering rebound in the euro could not be ruled out, any bounce is likely to be limited, Robinson said, adding that the euro faces resistance on hourly charts roughly around $1.2750, near the 55-hour and 100-hour moving averages.
S&P announced the highly anticipated downgrades just after New York markets closed on Friday. U.S. markets will stay shut on Monday for the Martin Luther King Jr. Day holiday.
"EURUSD has traded south ever since S&P's December 5 negative ratings watch announcement, and we suspect will remain subject to further downward pressure in the coming week," analysts at BNP Paribas said.
"This may have less to do with the fact that the EFSF is now threatened with the loss of its AAA status ... than worries over the fate of the Greek bond swap talks."
Pressure was mounting on Athens to complete a deal with private bondholders to cut its debt to more sustainable levels and convince its international lenders to keep giving it the cash it needs. Without aid, Athens would default in March when it has to redeem 14.5 billion in bonds.
With the single currency on the backfoot, the dollar index climbed 0.1 percent to 81.621, within easy reach of a 16-month peak at 81.784 hit late last week.
The dollar, however, slipped 0.2 percent against the yen to 76.84 yen, with traders citing dollar selling by Japanese exporters.
Market players are watching to see whether other ratings agencies, which have a large number of euro zone countries under review, will also announce their decisions in the days ahead.
"Given the propensity of rating firms to announce things after one another, we would expect some further headlines on this in the coming weeks. Indeed Fitch had already announced that it aimed to conclude its 'watch negative' reviews before the end of the month," said Laurent Fransolet, analyst at Barclays Capital.
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