Jeremy Hawkins, Bank of America, assesses the morning's trading

By midday the currency had recovered about half of its overnight losses, and is currently trading at $1.0875, at 1215GMT. It is substantially weaker than it had been 24 hours ago, but above its overnight low of $1.0816.

The euro fell by over a cent in overnight trading in the Far East and New York, to near its lowest level ever against the dollar.

Traders do not like political instability

The euro is also weaker against the yen and the pound sterling, moving to just above £0.67.

Analysts are expecting continuing falls in the European currency, with one dealer saying he expected the dollar to reach parity with the euro by the end of the year.

"Investors sold the euro in an initial reaction to the resignation of the EC commissioners," said a Japanese dealer in Tokyo.

The euro reached an all-time low of $1.0782 on March 4. It has been falling steadily since its launch at a level of around $1.18.

Euro already weak

In three months the euro has fallen by nearly 10% of its value.

Justin Urquhart Stewart, Barclays Stockbrokers: Euro will bounce back

When the single currency was launched in January, it was supposed to be strong and stable, the centrepiece of monetary union.

Europe's trade position was strong and it had huge currency reserves.

But both political and economic events have conspired to weaken the new currency.

The euro has been hurt by the weakness of the European economy compared to the continuing boom in the United States.

Exports boost

Marc Chandler, US currency strategist: Euro weak in the wake of resignations

And even before the resignation of the European Commission, the disagreement between the European Central Bank and the former German finance minister Oskar Lafontaine over whether to cut interest rates damaged confidence.

"I think we'll probably head towards $1.07. There's a few things at play at the moment: the sheer strength of the U.S. economy, the weakness in Europe," said Patrick Bennett of Warburg Dillon Read.

A weak euro could help boost European exports. But it could also threaten stability and force the new European Central Bank to raise, rather than lower interest rates in order to defend the currency, thus hurting economic growth in Europe.

Help in the long run

Some dealers were hoping that in the long run, the scandal could strength Europe's political system, which would ultimately help the euro.

"The commission was already regarded as incompetent. With this resignation, it's actually like a system cleansing," said a European bank dealer.

Former UK Chancellor Kenneth Clarke said he didn't believe the crisis would affect the credibility of monetary union.