Financial markets have rebounded after initial falls following Italian Prime Minister Matteo Renzi’s heavy defeat in Sunday’s referendum.
The euro was hit after Mr Renzi announced his intention to resign. At one stage the euro hit $1.0505, its lowest level against the US currency since March 2015.
But it rebounded from that low to stand at $1.0634, a fall of just 0.3%.
Shares in Italian banks opened lower before recovering ground.
The troubled Monte dei Paschi was down by more than 5% in the first few minutes of trade, but then rebounded and had edged into positive territory. Shares in Unicredit and Intesa also fell sharply at first before recovering.
Analysts say Mr Renzi’s defeat was already priced into the market.
Kathleen Brooks, research director at City Index Direct, said there was caution among investors but not panic.
“While the markets are likely to remain nervous as we start a new week, they haven’t fallen off a cliff, so far,” she said.
“Either markets are becoming immune to political risk, or they are taking the view that the Italian issue will be a slow-burner, even if the president can’t form a government, he still has 70 days to try, and that seems quite far away at this stage.”
However, the Italian economy is in a fragile state and a period of political uncertainty could do it further damage.
Analysts are particularly concerned about Italy’s banking industry, which is seen as vulnerable to a loss of confidence.
Many banks are struggling with a burden of bad debt and are in need of refinancing.
That finance is likely to be harder to come by amid a political crisis. It was thought that a victory for the Yes camp in the referendum could have seen investors stepping in to help recapitalise the banks. But given that the No voters won, analysts are now unsure what help will be forthcoming
“The economy is gradually recovering but it is also being held back by the problems in the banking sector which hasn’t been addressed properly so far,” said Lorenzo Codogno, former chief economist at the Italian Treasury and founder of LC Macro Advisors.
“So I think the combination of domestic and international factors plus the open issue of in the banking sector are at the root of not particularly brilliant growth,” he added.
Analysis: Simon Jack, BBC business editor
Although the share price of Europe’s oldest bank Monte dei Paschi is little changed, that could soon change if the consortium of investors planning a €5bn cash injection abandon their rescue attempt amid the political vacuum opened up by Matteo Renzi’s departure.
They will meet this afternoon to decide their response. The boss of the bank has described this plan as getting “several holes in one in a row”. Golfers will know how hard that is and the wind of political risk has just picked up.
If they do decide the plan is now too risky then the government may have no choice but to nationalise the bank. That would trigger a so called “bail in” which means people who lent the bank money would have to write it off. Unfortunately, 65% of those creditors are ordinary retail investors so the damage would be widespread and politically toxic.
The size of Italy’s government debt is also a concern. Government borrowing, depending on which figures you look at, is one of the largest in the eurozone.
Italy’s cost of borrowing rose sharply in early trading on Monday. The country’s 10-year government bond yield was up from 1.896% at the end of last week to 2.0516%. Yields rise when the price of bonds fall.
However, the yield then fell back below the 2% mark to stand at 1.988%.
Analysts said yields appeared to be bearing up despite the fact that the European Central Bank had not stepped in to buy bonds.
Mr Renzi’s defeat adds to pressure on the European Union following June’s Brexit vote in the UK.
“It’s not very hard to see a new election on the horizon, and it’s not very hard to see the 5-Star Movement taking power with stated aims to either leave the EU, drop the euro, or both,” said Mark Wills from State Street Global Advisors.
“For Italy, establishing stable governance and a plan to guide the nation is of critical importance given the fragility of the economy, challenging policies and the liquidity problems in the banking system.”
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