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The euro gained ground against the dollar in London morning trading on Tuesday after a successful auction of Spanish debt that saw yields fall significantly.
The single currency gained 0.7 per cent to reach $1.3088 against the dollar, its highest level in a week.
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It was boosted by a survey showing a strong rise in German business confidence in December.
Commodity and emerging market currencies made significant gains against the dollar amid the improvement in risk appetite. The Australian dollar rose 1 per cent to $0.9991 while the New Zealand dollar rose 1 per cent to $0.7627. The Canadian dollar was up 0.5 per cent to $1.0319.
The Swedish krona was up 1.1 per cent to Skr6.8493 after the central bank cut rates by 25 basis points, less than had been expected, to 1.25 per cent.
The krona continued its rise against the US dollar to hit its strongest level in a week after gaining ground for five trading days in a row. The Norwegian krone was up 1 per cent to Nkr5.8810.
Sterling rose 0.8 per cent against the dollar to $1.5630 following a survey showing that British retail sales rose in November at their fastest pace since May.
The euro was 0.5 per cent higher against the yen at Y102.00. The yen was flat against the dollar at Y77.96.
The euro continued to lose ground against the Swiss franc, which on Monday rose to its strongest level against the single currency since the start of November. The euro was down 0.1 per cent at SFr1.2173.
The Turkish lira strengthened against the dollar after the central bank said it could sell up to $350m worth of US dollars to defend its currency, according to a report from Reuters. The lira reached a 10-week low against the dollar on Monday, following strong demand from local banks for foreign currency.
The Hungarian forint was up 0.7 per cent against the dollar to Ft230.94 ahead of a decision by the central bank at which many analysts predicted an interest rate hike of 50 basis points in an effort to strengthen the currency and control inflation.
