The greenback rose briefly against the Japanese yen to 95.23 on the news that North Korea conducted its first nuclear test in three years and launched three short-range missiles, posing a threat to the region’s security. The won dropped by as much as 1.7% after the news and then closed with little change at 1,248.82 per dollar.

According to a statement from the official Korean Central News Agency, North Korea said its underground nuclear test was part of measures to ‘bolster up its nuclear deterrent for self defense’. The test may complicate efforts to get North Korean leader Kim Jong Il to return to six-nation talks aimed at ending its nuclear weapons program.

The single currency fell briefly against the U.S. dollar to 1.3858 after the release of weaker-than-expected German business confidence index. The German Ifo index in May came in at 84.2 versus the forecast of 85.0 and the reading of 83.7 in April, suggesting the recovery in the euro zone's biggest economy would take more time. Euro rebounded later in the day and hovered around 1.4000 in thin trade due to market holidays in the UK and the United States. The British pound traded inside 1.5835-1.5945 whilst the greenback moved inside 1.0827-1.0871 narrow range on Monday.

Investors are now focusing on other countries which may be at risk of an adjustment after Standard & Poor’s cut its outlook on the British’s AAA credit rating on May 21. As the U.S. fiscal position is much weaker than Britain's, adding concerns about possible downgrade of U.S. debt rating. Traders are awaiting the outcome of U.S. Treasury's two-, five- and seven-year debt auctions this week totalling $101 billion.

Tuesday will see the release of Japan's CSPI, German GDP and import price index, U.K. Nationwide housing prices, eurozone industrial orders and current account and U.S. consumer confidence.