The euro tumbled to its lowest level against the dollar in almost 14 years on 20 December, as ongoing uncertainty over the Eurozone economy and the previous day's attack in Berlin spooked sentiment.

The common currency fell 0.5% to $1.0353, its lowest since early 2003, as investors digested the news the Italian government was preparing a €20bn package aimed at rescuing the country's troubled banking sector.

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News of an attack on Berlin's Christmas markets, which killed 12 people and left another 48 injured, was also weighing on investors' minds, as it offered an unwanted reminder of the threat facing Europe.

Elsewhere, the pound lost ground against its main rivals, falling further behind as the ongoing uncertainty surrounding Brexit soured traders' mood just before Christmas.

Having fallen over 0.7% in the first session of the week, sterling extended the losses and, by early afternoon, it was down 0.13% and 0.64% against the euro and the dollar respectively, fetching €1.1902 and $1.2320.

"The ongoing battle of words between financial heavyweights on the Brexit topic has added to the anxiety, while hard Brexit concerns continue to encourage sellers to incessantly offload the pound," said FXTM research analyst Lukman Otunuga.

"With the lack of direction in the UK government's Brexit stance compounding to the uncertainty, sterling could be poised for steeper declines moving forward."

Across the Atlantic, the dollar recorded solid gains against the world's major currencies, rising 0.43% against the Swiss franc to CHF1.0319 and 0.29% against the Australian dollar to AUD$1.3832.

The greenback, which was flat against its Canadian counterpart, also surged 0.94% against the yen, trading at ¥118.19, after the Bank of Japan opted to keep its monetary policy on hold. Japan's central bank said interest rates would be kept at -0.1% and the 10-year government bond yield around 0%.

The BoJ also raised the country's growth outlook for the first time since May 2015, adding the economy would expand going forward amid rising domestic demand, large-scale fiscal stimulus and growing exports.

"The test for the BoJ now will be showing it's up to any test that the market throws its way," said Oanda's senior market analyst Craig Erlam.

"The market has tested similar commitments on numerous occasions in the past and with Japanese yields creeping higher over the last month or so, the BoJ's resolve may be tested soon."

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