The euro settled at $1.274 at 5:21 GMT on Monday morning after climbing to $1.3894 on Friday, its highest level since October 2011. The common currency has gained over four percent against the dollar this year and looks poised to finish 2013 with its second consecutive year of gains.
The common currency's end of the year rise is likely a combination of eurozone banks' last minute position adjustments and comments made by European Central Bank President Mario Draghi.
Europe's banks are working to ensure the validity of their balance sheets ahead of next year's ECB capital review. The region's central bank will carry out a series of tests in order to confirm the strength of the region's banks ahead of the bloc's new banking union implementation.
Reuters reported that on Saturday, ECB President Mario Draghi said he didn't see any immediate need to lower the bloc's main interest rate further. Drgahi said the bank hasn't seen any additional signs of deflation, signalling to investors that the bank is likely to continue with its current policy.
Despite Draghi's comments, some are still worried about the bloc's falling inflation figures. The last few months of data have shown that the eurozone's inflation has slipped dangerously low, below one percent.
Moving forward investors will be closely watching for inflation data due out this week for clues about next week's eurozone inflation figures. Italy's inflation report is due out on Friday, and if it comes in below expectations it could put some pressure on the common currency as it would indicate that next week's eurozone figures may be lower than expected.