Better-than-expected data from China's giant manufacturing sector boosted global stocks and the euro on Tuesday and pushed safe-haven bets like German bonds lower.
Europe's debt crisis still clouds the outlook ahead of a daunting first quarter of borrowing which is expected to push the euro lower and undermine demand for the region's lower-rated sovereigns.
Signs of improved growth in the United States may also cool any speculation about another round of money-printing by the Federal Reserve, improving the outlook for the dollar.
"The overall bias remains for more euro weakness...given the growth and debt dynamics," said Callum Henderson, global head of FX research with Standard Chartered Bank in Singapore.
The euro rose 0.3% against the dollar to $1.2983, but stayed within striking distance of its 2011 trough of $1.2858 hit last week.
"There's a little bit of optimism in the markets after upside surprises on the Chinese data front and also German manufacturing PMI was slightly better than expected yesterday," said Manuel Oliveri, currency strategist at UBS in Zurich.
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"But generally we stick to the view that rallies in the euro should be sold into," he added.
Economic data eyed
The official Chinese purchasing managers' index released on Sunday indicated a slight rise in factory activity in December.
Investors will also watch the UK manufacturing PMI for January, due at 0928 GMT, and ISM Manufacturing PMI data for the United States at 1500 GMT for further signs of recovery.
European stocks extended recent gains to open up 0.9% after hitting a two-month high on Monday while London traders were still on holiday. The heavily commodity-weighted UK FTSE 100 index opened up 1.9%.
US crude jumped around 1.5% to almost $109 a barrel, also reflecting a bounce over the Christmas period due to escalating tensions between Iran and the West.
Spot gold rose as much as 1.4% to $1,586.95 earlier on Tuesday, also helped by investors renewed appetite for riskier assets.
Influential investor Jim Rogers, a well-known commodities bull, told Reuters he remains bullish on commodities in general but expects gold will drop further given the run-up over the last 10 years.
"In my view, gold could go to $1,200-$1,300 (an ounce)," Rogers said in an interview with Reuters Insider.