The euro recovered on Tuesday from earlier losses linked to the collapse of the Turkish lira, but investors said the exposure of European banks to Turkey would continue to hound the single currency.
The lira has fallen almost 30 percent this month on concerns about a diplomatic rift with the United States and President Tayyip Erdogan's reluctance to raise interest rates despite rising inflation.
The lira pulled back on Tuesday from Monday's record low of 7.24 after the Turkish central bank pledged to provide liquidity in response to a meltdown that unsettled global markets.
The euro traded up 0.1 percent on Tuesday at $1.1420, having fallen to a 13-month low of $1.1365 on Monday. So far this month it has lost 2.4 percent.
"The euro's fall on worries about European banks' exposure to Turkey seems a bit overdone, considering that their scale is not that huge," said Yukio Ishizuki, a senior strategist at Daiwa Securities.
Other analysts said the euro's gains were unlikely to last long.
"We did not see much of an uplift in the euro despite some decent German growth data. That suggests to me this relief rally may be pretty short-lived," said Viraj Patel, a currency analyst at ING in London.
Investors remain nervous about the plunge in the lira, prompting capital outflows from other emerging markets that run hefty current account deficits and rely on foreign capital.
Emerging market currencies continued to reel on Tuesday with the South African rand down two percent, the Russian rouble dropped 1.4 percent and the Mexican peso 0.8 percent.
Traders shifted into currencies deemed safer, such as the yen and Swiss franc, underlining market worries about Turkey, but on Tuesday those jitters appeared to subside.
The franc fell against the euro after hitting a one-year high of 1.1288 francs on Monday. The yen weakened 0.4 percent versus the dollar to 111.145.
But "until the crisis in Turkey is over or the market considers it to be an isolated problem, risk aversion is likely to remain elevated which will continue to benefit mainly the currency safe havens," said Antje Praefcke, a currency strategist at Commerzbank in Frankfurt.
The dollar was headed for its biggest daily decline this month and versus a basket of major currencies was down 0.2 percent at 96.230. It had rallied since the Turkish lira crisis erupted last week.
Onshore Chinese yuan, which had retreated roughly 0.7 percent the previous day, falling along with its emerging market peers, was a shade firmer at 6.8851 per dollar.
The yuan's bounce was limited following the release of downbeat economic indicators, and it remained in reach of a 15-month trough of 6.8965 set earlier this month.
China's economy is showing further signs of cooling as the U.S. prepares to impose even tougher trade tariffs. Investment in the first seven months of the year slowed to a record low and retail sales softened, data released on Tuesday showed.