The euro hit a nine-month peak against the dollar today as comments signalling additional jumbo interest rate rises in Europe contrasted with market pricing for a less aggressive Federal Reserve.
The euro reached as high as $1.0927, breaking the recent peak of $1.08875, to trade at its highest level since April last year. It was last up 0.2% at $1.0878.
The single currency was aided by European Central Bank governing council members Klaas Knot and Peter Kazimir, who both advocated for two more 50 basis point hikes at meetings in February and March.
A Reuters survey of analysts also favoured hikes of 50 basis points at the next two meetings and an eventual rate peak of 3.25%, from the current rate of 2%.
The euro was also being supported by an easing of recession fears amid a fall in natural gas prices, according to Rabobank head of currency strategy Jane Foley.
"The growth in confidence in the economic outlook, or at least the removal of a lot of the pessimism, is part of the euro story," Foley said.
"Layered on top of that, it looks as if the ECB are going to carry on hiking interest rates fairly aggressively," she added.
In contrast, futures have priced out almost any chance the Fed could move by 50 basis points next month and have steadily lowered the likely peak for rates to 4.75% to 5%, from the current 4.25% to 4.5%.
Investors also have around 50 basis points of US rate cuts priced in for the second half of the year, reflecting softer data on inflation, consumer spending and housing.
Flash surveys on January economic activity due this week are forecast to show more improvement in Europe amid falling energy costs than in the US.
"The U.S. has lost its global growth leadership position if most recent PMI surveys are to be believed," said Ray Attrill, head of FX strategy at NAB.
"Additionally, US inflation is seen falling further and faster than the Fed's own projections," he added. "Under this scenario, the USD has scope to fall much further this year."
The dollar index, which measures the greenback against a basket of currencies including the euro, was flat at 109.96, a whisker away from its eight-month trough of 101.510.
The dollar rose against the yen, holding firm after the Bank of Japan defied market pressure to reverse its ultra-easy bond control policy last week.
Analysts assume the Bank of Japan will stand the line until at least the next policy meeting in March, though one hurdle will be the expected naming of a new governor in February.
The dollar was up 0.6% at 130.345 yen, following last week's wild gyrations between 127.22 and 131.58.
The pound rose as high as $1.24475 today, its highest in seven months, before turning 0.3% lower to $1.2355.