The euro rose on Wednesday after some of the world's biggest central banks said they would not stop investing in the single currency, while world equities and commodity prices fell.
The yen and Tokyo's shares weakened following Japan's Prime Minister Yukio Hatoyama's resignation.
Official sources in Brazil, India, Japan, Russia and South Korea told Reuters in separate interviews that due to the liquidity of the dollar and the euro and the difficulty of shifting such large portfolios, there were no alternatives to the two currencies in the near term.
The euro steadied at $1.2228 after rising to around $1.2249 following the news.
The euro is down more than 14 percent against the dollar this year on fears stemming from Greece's sovereign debt problem and possible contagion risks which sparked a sell-off in financial markets around the world.
The weakness in the single currency has raised concerns whether central banks around the world, especially those surplus rich countries, will trim their holdings of the euro.
The U.S. currency advanced 0.7 percent to 91.61 yen as investors sold on the view that political instability would make the economy more dependent on the Bank of Japan and its easy monetary policy.
The big theme is still one of a weak and vulnerable euro. Very few investors are ready to put on long euro/dollar positions, and any spikes are due to profit-taking on short positions, said Niels Christensen, currency strategist at Nordea in Copenhagen.
The political situation in Japan could give a reason for brief yen selling, but it is likely to be limited because risk aversion is still very much on the table.
YEN, NIKKEI DOWN
Tokyo's Nikkei average <.N225> fell 1.1 percent, unsettled by the resignation of Hatoyama and his powerful No. 2.
World stocks measured by the MSCI All-Country World Index <.MIWD00000PUS> slipped 0.6 percent, on the back of weaker markets in Asia and Europe. The index fell nearly 10 percent last month, its worst monthly loss since February 2009. In Europe, the FTSEurofirst 300 <.FTEU3> index lost 0.8 percent, with oil major BP falling 1.8 percent to extend the previous session's 13 percent slump.
The U.S. government has launched a widely expected criminal and civil investigation into BP's massive oil spill, ratcheting up pressure on the beleaguered British oil company.
Bund futures rose as equities opened lower and risk appetite ebbed, while investors awaited a Portuguese treasury bill auction seen as an important gauge of demand for peripheral euro zone debt.
Portugal sells up to 750 million euros of three-month T-bills at auction later in the day which, given the European Central Bank's intervention in longer-dated bonds, should give a clearer picture of investor demand for the country's debt.
Portuguese bonds' relatively good performance versus the bigger peripherals bodes well, so although the T-bill auction will be scrutinized by the market, it should go through. From our perspective there's no risk of a buyers' strike, said David Schnautz, strategist at Commerzbank in Frankfurt.
The 10-year German bond yield was down 1.7 basis points at 2.664 percent while the two-year Schatz yield was all but flat at 0.490 percent.
In the commodity market, crude prices dipped 0.2 percent to trade above $72 a barrel, and copper prices eased 1.8 percent.
(Editing by Ron Askew)
(Additional reporting by Jessica Mortimer and William James)