Dollar weakened against most currencies as renewed optimism over prospects of a U.S. recovery prompted investors to switch to riskier assets on Monday, however, more evidence may be needed to justify further gains.

Despite a brief dip to intra-day low of 1.4257 in Asia to start the 1st trading day in 2010, the single currency rebounded as European markets opened and price later rallied to as high as 1.4457 in NY morning on renewed risk appetites due to the rally in European and U.S.equities before trading sideways in NY afternoon. In other news, euro-zone manufacturing PMI which was forecasted to be 51.6, rose to a 21-month high of 51.6 in December, boosted by rising orders and output. The figure supported expectation of a stronger economic performance in the final quarter of 2009.

The British cable initially fell to intra-day low of 1.6060 at European opening but price quickly rebounded from there and then rallied to intra-day high of 1.6242. However, cable was unable to hold on to its gain and was dragged lower by active cross-selling in sterling (eur/gbp rose from 0.8854 to 0.8967), price later dropped to around 1.6085 in NY mid-session before stabilizing.

U.K. manufacturing PMI rose to 54.1 in December (economists' forecast was 52.0) from 51.8 in November).

Versus the yen, dollar rose in line with the gain in Nikkei index. The pair briefly breached last Thursday's high of 93.15 and reached intra-day high of 93.22 at European opening. However, the greenback retreated from there quickly and price nose-dived to 92.18 after the release of better-than-expected U.S. ISM manufacturing data which rose to 55.9 in December (economists' forecast of 54.3) versus the reading of 53.6 in November.

Commodity currencies had a strong showing on Monday. Australian dollar, New Zealand dollar and Canadian dollar all rose more than 1% against the greenback due to the strength in both gold and crude oil (gold and oil rose to 81.69 and 1121.00 respectively). All three currencies reached their respective highs of 0.9137. 0.7357 and 1.0351 in NY session.

Data to be released on Tuesday include Germany unemployment rate, U.K.PMI construction, EU HICP flash, Canada PPI, U.S. durable goods, factory orders and pending home sales.