NEW YORK (MarketWatch) — The euro tumbled to its lowest level versus the dollar since July 2010 on Wednesday on mounting worries over the implications of Greece’s potential exit from the euro zone and as a meeting of European leaders is under way.

The euro EURUSD, -0.26% fell as low as $1.2544 before lately changing hands at $1.2578, down from $1.2688 in North American trading late Tuesday.

The currency, down about 5% this month, hasn’t closed below $1.26 since July 2010, according to FactSet Research data.

Poland: A proxy for Eastern Europe

The dollar index DXY, +0.12% , which tracks the greenback against a basket of six major currencies, touched its highest since September 2010 — 82.073, up compared with 81.674.

An informal summit or European Union leaders in Brussels was billed as a chance to discuss jobs and growth plans. No formal communiqué is scheduled.

Officials remain divided on what action, if any, to take before Greece’s elections next month, and the European Central Bank has resisted calls for further action to support either Greece or Spain.

“As long as major central banks refrain from any new liquidity action in the form of FX swaps and the [International Monetary Fund] remains silent before the Greece June 17 elections, the path of least resistance for traders [is] to continue selling the euro rallies and eventually targeting the 2010 lows under $1.18,” said Ashraf Laidi, chief global strategist at trading platform City Index.

The euro fell to the lows of the session following a report saying the Eurogroup Working Group, a team of experts who work for euro-zone finance ministers, told members of the shared currency to prepare contingency plans in case Greece exits economic and monetary union.

The move lower by the shared currency is an extension of late Tuesday’s decline after former Greek Prime Minister Lucas Papademos told Dow Jones Newswires that it “cannot be excluded that preparations are being made for the potential consequences of a Greek euro exit.”

Papademos later said he knew of no specific preparations for such an event, nicknamed “Grexit.” Read about currencies Tuesday.

The remarks were credited with pushing the euro below $1.27 and robbing U.S. stocks of gains achieved earlier Tuesday. On Wednesday, U.S. equities extended those losses, with the S&P 500 Index SPX, -0.48% paring losses in afternoon trading to 0.3%. Read more on U.S. stocks.

“The damage to risk proxies and euro/U.S. dollar was never quite erased,” said Elsa Lignos, currency strategist at RBC Capital Markets in London. The move was more technical than fundamentally driven.

The fact that the euro didn’t recover despite Papademos clarifying his remarks highlights the currency’s vulnerability, said Jane Foley, senior currency strategist at Rabobank Internatonal in London.

Bank of Japan aids yen

Also Wednesday, the yen made gains on the dollar after the Bank of Japan failed to unveil any new easing measures.

Japan’s central bank left interest rates unchanged, as expected, and maintained the size of its asset-purchase program, despite political pressure to curb deflation and boost growth. Read more on the Bank of Japan’s policy decision.

The dollar USDJPY, -0.01% fell to ¥79.49 from ¥79.82 just before the decision and ¥79.96 late Tuesday.

Capital Economics chief global economist Julian Jessop expects the yen to rise as far as ¥70 as the European crisis shows fresh signs of escalating.

“The Bank of Japan will be essentially powerless in the face of strong demand for safe havens from the crisis in Europe. Even the Swiss National Bank, which has set an explicit cap on Swiss franc strength, is struggling to hold the line,” Jessop wrote in emailed comments.

Bank of England and QE speculation

The British pound GBPUSD, -0.06% traded at $1.5698, falling under $1.57 for the first time since March and down from $1.5754 Tuesday.

Minutes of the Bank of England’s May monetary-policy meeting showed members voted 8 to 1 to make no changes to the central bank’s bond-buying program, with one member voting for an increase. Read more on Bank of England minutes.

Economists at UniCredit see the overall chances of further asset purchases rising in the months ahead. “However, we believe that a decision to undertake more QE would require a significant deterioration of the growth outlook,” they wrote. “Next month’s data and the developments in the euro area will play a key role.”