The euro hit a five-month high against the dollar Monday as investors moved into the single currency before an expected interest rate hike by the European Central Bank later this week, analysts said.
The European single currency jumped to $1.4268 in Asian deals -- the highest level since November 4.
As traders booked profits in London trade, the European single currency dipped to $1.4223 from $1.4225 in New York late Friday.
The dollar edged down to 83.98 yen from 84.00 yen.
"The event that is likely to shape market price action for most of the week is the ECB rate decision and subsequent press conference on Thursday," said Citi analyst Valentin Marinov.
"It seems that market participants are already anticipating a 25 basis points hike by the euro area monetary policy authority.
"The ECB press conference can still attract considerable interest with investors looking for indications whether Thursday's rate decision will be the precursor of a tightening cycle in the eurozone," Marinov said.
It would be the first change to the record low rate of 1.0 per cent in effect since May 2009 and could increase the pressure on weak eurozone members Greece, Ireland, Portugal and Spain who are trying to stabilise strained finances.
It would put the ECB among the first major first leading central banks to raise interest rates, driving the euro higher on foreign exchange markets.
"With the Fed still not expected to hike rates until late 2011, euro/US dollar should continue to appreciate from a widening interest rate differential in favour of the single currency," DBS Group Research said in a report.
ECB rate hikes would offer higher returns on investments compared with the ultra-low interest rates set by the US Federal Reserve.
"Only a severe escalation of the situation in Japan or a crisis in the financial markets is likely to prevent the ECB from raising rates" on Thursday, Commerzbank economist Michael Schubert said.
In London on Monday, the euro changed hands at $1.4223 against $1.4225 in New York late on Friday, at 119.24 yen (119.49), £0.8805 (0.8829) and 1.3117 Swiss francs (1.3145).
The dollar stood at 83.98 yen (84.00) and 0.9239 Swiss francs (0.9238).
The pound was at $1.6124 (1.6109).
On the London Bullion Market, the price of gold rose to $1,434.30 an ounce from $1,418 late Friday.