Despite the decline, the European Central Bank (ECB) decided to leave eurozone interest rates unchanged at 2.5%, which was expected by the markets.

ECB president Wim Duisenburg insisted the bank believed there was scope for the euro to rise.

ECB president Wim Duisenberg is struggling to regain the markets' confidence in the euro

He said the currency's persistent weakness was a direct consequence of economic divergence between the stagnating European economy and the US powerhouse.

He added: "In the long run, I see more factors pointing at an appreciation of the euro than at a depreciation of the euro."

However his comments failed to stop the euro sliding to a new lifetime low against the dollar of $1.0330 in US morning trade on Wednesday,

The euro also fell against the pound with the young currency dropping to a lifetime low of 64.19p per euro.

This is the euro's lowest value since it was launched in January at $1.17.

Some currency traders now predict that the euro could soon be on par with the US dollar. This could trigger a nasty crisis of confidence in the currency.

ECB intervention?

At the start of the week there had been market rumours that the ECB might intervene on the markets in an attempt to boost the euro.

This stopped the slide of the currency for two days, but analysts are now convinced that the bank will refrain from a currency intervention.

On Tuesday, a senior Bundesbank official had suggested that interest rates for the eurozone may have to rise, if the single currency continues to be weak on the markets.

Edgar Meister, member of the German central bank's directorate, said a rate hike could strengthen investors' confidence.

However, he stressed that he was not forecasting that rates would rise in the coming months.

Weak euro = bad euro?

The euro's weakness sits uneasy with confident predictions by EU politicians that the euro would be a strong currency that could rival the US dollar.

Economists Trevor Williams (Lloyds TSB) and Kate Barker (CBI) discuss the implications of the Euro's slide

For the eurozone's exporters, though, the weakness is a boon, making their products cheap and attractive for the world markets.

Europe's largest economy, Germany, is flagging and urgently needs a boost for its export industry.

UK exporters are suffering from the strong pound and would dearly love to see the currency appreciate.

Economic growth is the key to the euro's fortunes, though. Europe's big economies are flagging, hurting government revenues and threatening targets to reduce public deficits.

In contrast, the US economy is going from strength to strength. This boosts the US dollar - and the pound, which tends to mirror the dollar's market movements.

Talking up the euro

The EU's Romano Prodi believes the euro's decline is not worrying

Meanwhile, attempts to talk up the euro continue, although the markets take less and less notice.

European leaders have another chance to reassure the markets, when they meet on Thursday and Friday in Cologne, Germany, for an EU summit.

On Tuesday, European Commission president designate Romano Prodi said the currency's weakness was not a cause for concern: "It is in a normal fluctuation".

"I think we will have a strong euro in the future because there will be the conditions for this to happen," said the former Italian prime minister.

He was echoing sentiments earlier expressed by Dutch finance minister Gerrit Zalm who said he expected the euro to strengthen if its economies improve relative to America's.

The speculation about central bank intervention had been sparked by reports that Bundesbank president-designate Ernst Welteke had said that the euro's recent weakness meant that it now needed "close monitoring".