The euro hit a two-week high against the dollar on Monday (5 December), as the common currency shook off the news that Italian Prime Minister Matteo Renzi said he would resign following a crushing defeat in the country's constitutional referendum.

Renzi's announcement had prompted the euro to plunge to as low as $1.0507 overnight, its lowest level since March last year. Despite the sharp fall, by early afternoon the Eurozone's currency had bounced back, gaining 0.16% and 0.84% against the dollar and the pound respectively, to trade at $1.0690 and 0.8418p.

However, analysts warned the currency's recovery could be as short-lived as it was swift.

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"With fears mounting over the 'No' camp creating further turmoil for Italian banks, the rising uncertainty could rapidly erode risk sentiments towards the euro," said FXTM research analyst Lukman Otunuga.

"Investors' anxiety continues to rise over Sunday's referendum results negatively impacting Italy's membership of the European Union with euro weakness potentially becoming a dominant theme till year end."

In the immediate aftermath of the vote, analysts at RBC Capital Markets argued that, based on what happened in 2012 at the height of the Greek crisis, the risk of a Eurozone crisis could see the euro trade as low as $0.8000.

"It may sound extreme, but if a second Eurozone crisis were to hit, with the US dollar at a much stronger starting point, the euro could arguably trade lower still," they wrote.

Fawad Razaqzada, market analyst at Forex.com, added that while the currency markets had put volatility behind them for the time being, euro/dollar could make significant moves later this month.

On Thursday, the European Central Bank (ECB) will deliver its latest policy announcement, while less than a week later the US Federal Reserve will mostly likely hike interest rates.

"Investors will want to know whether the ECB will extend its quantitative easing programme beyond the intended end date of March 2017, and how aggressive or otherwise the Fed will be in tightening US monetary policy," Razaqzada explained.

"If these fundamental events still point to widening disparity between policy stances in the Eurozone and the US then the euro/dollar will most likely start its descend towards parity, after all."

Away from the Eurozone, the pound was down 0.11% against the dollar, exchanging hands at $1.2711, despite a positive report on the state of Britain's services sector. According to a survey compiled by IHS Markit, the sector, which accounts for 75% of the UK economy, expanded at the fastest pace in 10 months in November, on the back of increased demand from abroad.

Meanwhile, across the Atlantic, the dollar gained ground against the yen, rising 0.68% to ¥114.28 but was largely unchanged against its Canadian and Australian counterparts, trading at CAD$1.3297 and AUD$1.3447 respectively.