The euro hovered near four-month lows against the dollar on Friday, beset by political deadlock in Italy and worries huge losses Cypriot depositors have been forced to stomach as part of a bailout could unnerve investors in other euro zone debt.
The market has so far shown a limited response to escalating geopolitical tension after North Korea said it had put rocket units on standby to attack U.S. military bases in South Korea and the Pacific.
The euro stood at $1.2813, little changed from late U.S. levels, though trade was thin, with many markets closed for Good Friday.
The euro was poised to end the first quarter recording a roughly 2.9 percent loss against the dollar, its first quarterly decline since the second quarter of 2012.
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"The euro appears to be stabilizing just for now, but European bond markets are clearly showing a rather different picture," said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.
In a sign nervous investors are shifting funds back to safe-haven German bonds, the 10-year German Bund yield fell to an eight-month low on Thursday.
There is no sign of a break-through in Italian political stalemate, with center-left leader Pier Luigi Bersani failing in his attempt to find a way out of the deadlock, prompting President Giorgio Napolitano to seek another solution.
In Cyprus, banks reopened for the first time in almost two weeks without causing a massive run on deposits, though the country conceded tight capital controls would remain in force longer than expected, likely for about a month.