The euro has eased to take a breather from a rally prompted by optimism over the euro zone's economy and expectations the European Central Bank will wind down its bond-buying stimulus in 2018.

Shortly after 9am the euro had slipped 0.17% to $1.2036.

The currency hit a four-month high of $1.2081 yesterday, marking a gain of roughly 3% from a mid-December trough and bringing it close to a September high of $1.2092, the currency's highest level since early 2015.

It was boosted by data showing euro zone manufacturers ended 2017 by ramping up activity at the fastest pace in more than two decades as rising demand suggested they will start the new year on a high.

The euro was also supported by expectations for a shift in ECB monetary policy this year.

The ECB board member in charge of the central bank's market operations, Benoit Coeure, said at the weekend that he saw a "reasonable chance" bond purchases would not be extended beyond September.

ECB rate-setter Ewald Nowotny told a German newspaper in an interview that the ECB may end its stimulus programme this year if the euro zone economy continued to grow strongly.

"It's this monetary policy normalisation everywhere that's playing catch-up to the Fed, and that's why the dollar is weak," said Heng Koon How, head of market strategy for United Overseas Bank in Singapore.

The dollar index against a basket of six major currencies held steady at 91.902, having pulled up from yesterday's 3-1/2 month low of 91.751.