The euro advanced to a 14-month high against the dollar and 33-month peak against the yen today on improving prospects for the currency bloc, with investors gearing up for more gains in the near term.

With euro zone economic sentiment rising for the third month in a row, signalling improvement across sectors, and comments from European Central Bank policymaker Ewald Nowotny about the recovery seeping into the real economy, analysts said the recent trend of euro strength could be maintained.

And given bets that US fourth-quarter gross domestic product data, due later in the day, will show growth slowing, and the Federal Reserve will stick to its easy-policy stance, the euro could edge up further against the dollar.

The euro hit a 14-month high of $1.3563, vaulting an option barrier at $1.3500 on sustained demand from model and macro funds, traders said. It was last up 0.4 per cent on the day at $1.3540.

The single currency rose to a 33-month high of 123.87 yen, breaking past a reported option barrier at 123.00 yen on expectations of further monetary stimulus from the Bank of Japan. The euro has risen 8 per cent against the yen this year.

"Right now the euro is certainly going to make some gains against most of the G10 currencies on reasonably positive to stable economic data and a central bank that seems to continue to back the move in the euro without complaining about it," said Peter Frank, FX strategist at BBVA.

Recent upbeat German data showed the euro zone's biggest economy may be on a path of steady recovery, while signs European banks may have turned the corner, after their first repayment of loans taken from the ECB, have bolstered optimism that the worst of the bloc's debt crisis has passed.

The euro's strength was more evident in the crosses, especially against the yen. Investors, mainly from Japan, have been keen to pour money into euro zone assets, pushing the euro higher.

Analysts said the euro would edge higher as most other major central banks, including the BOJ and the Fed, were pumping in stimulus, but the ECB seemed unperturbed about the euro's steep ascent.

ECB governing council member Mr Nowotny said today that the euro, while strengthening against the dollar and the yen, was still within its long-term exchange rate band.

"The ECB is doing nothing to talk down the currency and everything necessary to send it higher," Societe Generale analysts said in a note.