The euro climbed to an 11-month high versus the dollar Monday and was broadly supported against major European currencies as investors pared expectations of monetary easing from the European Central Bank and the outlook improved for Spain, the region's fourth largest economy.
The single currency shared by 17 European countries also extended gains against the yen, touching its highest level since May 2011, as Japan's government applied more pressure on its central bank to ease monetary policy, contrasting sharply with the ECB's stance.
However, after hitting the 11-month high just above $1.34 against the dollar, the euro pared gains, weighed down by data showing output at euro zone factories fell for a third straight month in November.
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Nevertheless, the euro posted sharp gains against the Swiss franc and the pound. Against the franc, the euro rose to a 13-month high. The euro also hit a nine-month peak versus the pound.
Neal Gilbert, currency strategist at FX broker GFT in Grand Rapids, Mich., said there is "increased confidence" among investors that "the euro zone economy is turning in the right direction and a recovery is afoot."
He added that increased optimism can be seen in borrowing rates for Spain and Italy, which have seen their 10-year bond yields decrease.