The euro dived to 1.2162 dollars, its lowest level since April 17, 2006, at around 1900 GMT in New York trading.
Earlier in London, it had recovered to 1.2403 dollars after finishing at 1.2394 dollars late in New York on Monday, when it struck a four-year low of 1.2234.
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Bearish sentiment on the euro prevailed even after eurozone finance ministers vowed to fix the region's finances while expressing concern at their plunging currency.
"The sentiment is very fragile," said Vassili Serebriakov, currency strategist at Wells Fargo Bank.
"There are probably 100 reasons to sell the euro right now -- the ECB credibility is one issue, the growth concern is another issue, the lack of clear message from the EU different politicians in the euro zone is an issue, and the list goes on."
"The only reason to buy is that the market is already holding substantial bearish positions on the currency," Serebriakov said.
Traders said the euro's decline accelerated after Germany said it would issue new restrictions on bearish trading, also a reason for Wall Street's plunge Tuesday.
"Its downturn steepened following news that Germany will ban naked short selling of certain financial stocks, credit default swaps, and government bonds," analysts at briefing.com told clients.
Germany's securities market regulator Tuesday slapped a ban on certain speculative trading practices as it tried to stamp down market volatility in trading in government bonds of the 16 eurozone members.
Naked short sales "will be banned from midnight" for certain securities, a finance ministry spokesman told AFP in Berlin.
"The extraordinary volatility of the bonds of eurozone states" justified the ban on short selling, said the German market regulator, Bafin.
Given the current market conditions, with investors fearing possible contagion from the Greek debt crisis, "new excessive price variations could harm many on the financial markets and threaten the stability of the whole financial system," said Bafin.
Naked short selling is when investors sell on the market a stock they don't own and haven't even borrowed, hoping to be able to buy it back later in the day at a lower price, thereby earning a profit.
Short selling has been repeatedly implicated in quick drops in markets, and its use has been limited or banned during the financial crisis on major exchanges.
