The euro climbed against the dollar and European stock markets rose on Tuesday as G7 countries warned of foreign exchange volatility, while dealers also digested news of job cuts across the banking and telecoms sectors.
Risk-appetite meanwhile dampened as a defiant North Korea staged its most powerful nuclear test yet and warned of "stronger" action to follow if the ensuing wave of global condemnation translated into tougher sanctions.
The European single currency stood at $1.3422 in London deals compared with $1.3404 late in New York on Monday. The euro and dollar fell versus the yen, while the British pound fell against the single currency and against the greenback.
Gold prices fell to $1,641.75 an ounce from $1,652 in trading on Monday on the London Bullion Market.
The Group of Seven top industrialised nations said on Tuesday that "excessive volatility" in exchange markets undermines stability, in a statement by current G7 president Britain.
But the statement stood by foreign exchange rates set by the market, despite objections from France last week to market-driven currency values, against a background of concern about competitive devaluations.
Japan's recent monetary easing has stoked fears, especially in Europe, of a so-called "currency war" between the major economies as policymakers seek to devalue their currencies to make exports more competitive.
In stock market trading, London's FTSE 100 index of top companies rose 0.58 percent to 6,313.77 points in afternoon deals. Frankfurt's DAX gained 0.14 percent to 7,644.20 points and in Paris the CAC 40 won 30 percent to 3,644.20 points.
Barclays' share price surged 7.4 percent to 323.83 pence, topping London's FTSE 100, after the scandal-hit British bank said it would cut at least 3,700 jobs this year and slash costs -- and also revealed that it had plunged into an annual net loss amid the Libor rate-rigging crisis.
"In all, the strategy update and results are largely in line with expectations," said Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers.
"A series of legacy issues such as Libor continue to overhang, whilst increased regulatory and capital requirements continue to reduce prospective investment returns going forward."
In Paris, France Telecom shares fell 1.22 percent to 7.79 euros after Orange Poland, which it controls, said it would axe 1,700 this year.
Asian stock markets closed mixed in holiday-thinned trade, with Tokyo boosted by a weaker yen, while Seoul was lower after news that North Korea had successfully tested a nuclear bomb.
With several regional markets still closed for Lunar New Year celebrations, trading was quiet, while dealers look ahead to a meeting of the Group of 20 top economic power at the end of the week.
"With ground to make up from a long weekend the overnight Asian markets were very positive until news that North Korea has carried out nuclear testing slightly derailed sentiment," said Alastair McCaig, market analyst at IG trading group in London.
US stocks opened flat Tuesday as markets looked ahead to President Barack Obama's State of the Union address in the evening.
The Dow Jones Industrial Average rose 0.06 percent to 13,979.23 points after five minutes of trading.
The S&P 500 index edged up 0.02 percent to 1,517.29 points, while the tech-rich Nasdaq Composite dipped 0.02 percent to 3,191.40 points.
Investors will be watching Obama's nationally televised speech at 0200 GMT Wednesday to gauge "content and tone as a guide for assessing the likelihood of avoiding sequestration slated to go into effect March 1," said Patrick O'Hare of Briefing.com.
Massive spending cuts are due to kick in on March 1, which analysts worry could trip the US economy back into recession, unless the Obama administration and Republicans can agree on alternatives.