Markets have had a turbulent session after North Korea’s missile test over Japan prompted a warning from Donald Trump that “all options are on the table”.
On Wall Street, the Dow Jones Industrial Average and the S&P 500 opened sharply lower, following European share indices into the red – with London’s FTSE 100 slipping by 1% and bourses in Paris and Frankfurt also down.
Investors piled into safe havens such as gold on worries over North Korea as well as the impact of storm Harvey in Texas, sending the US dollar lower.
However both the currency and US stocks saw some recovery after better than expected US consumer confidence figures.
The dollar had already been under pressure in recent days over the diminishing prospect of another interest rate hike this year, especially after a threat by Mr Trump to shut down Congress amid a stand-off over his plan for a Mexico border wall.
:: Tensions on Korean peninsula at ‘tipping point’, China says
The US currency’s weakness helped the euro jump to above $1.20 against it.
But it did little for the pound, which remained stuck at little more than $1.29 and also hit a new eight-year low against the single currency – it is now worth less than €1.08.
In London stocks, banks were among the biggest losers, with Lloyds Banking Group and Royal Bank of Scotland each down more than 2%.
Precious metal miners Randgold Resources and Fresnillo topped the index, up 5% and 3%, as the price of gold climbed.
Craig Erlam, senior market analyst at Oanda, said: “We’re seeing significant risk aversion in the markets on Tuesday
“A ramp up in tensions between North Korea and the US, South Korea and Japan overnight has raised geopolitical risk once again.
“The distressing impact of Hurricane Harvey in Houston is also weighing heavily on sentiment this morning.
“From a markets perspective, the uncertainty surrounding the cost and the economic implications of the storm is going to be a concern for investors, although it is difficult to look past the sheer devastation it has caused at the moment.”