The single currency has been supported recently as banks repatriate funds before a review by the European Central Bank but may struggle if eurozone PMI surveys raise fresh concerns about the region’s economic outlook.

Sterling

Sterling has set another new two-year high against the US dollar ahead of manufacturing data, which is likely to strengthen the possibility that the Bank of England will raise interest rates much sooner than it predicts. The pound has also climbed by over one per cent against the euro over the past few days to within reach of a one-month high as markets continue to look ahead to a more robust UK economy and more hawkish Bank of England in 2014. Sterling also registered another new five-year peak against the yen but the UK currency will be vulnerable to profit taking if UK manufacturing PMI number misses estimates or if data from Europe buoys the euro.

US dollar

The US dollar could start to bounce back as liquidity picks up after the holidays following positive data on US consumers. December’s US consumer confidence index rose sharply from 72 in November to 78.1, indicating that the world’s biggest economy picked up more momentum heading into 2014 than analysts had anticipated.The US dollar is under pressure ahead of the ISM index, which is forecast to show a small slowdown in manufacturing activity last month. The Fed decided in December to trim its monthly bond buying from $85 billion to $75 billion per month from January and investors will continue to look for clues on how quickly the Federal Reserve will taper its asset purchases in 2014.