The euro advanced broadly on Friday, jumping more than 2 percent against the yen, on optimism Greece would be able to forge a debt deal with its creditors, enabling the troubled nation to stay in the euro zone. The yen and the Swiss franc, which tend to do well during turmoil in financial markets, both fell as demand for riskier assets also picked up after Chinese shares rebounded.
-- Fed Chair Yellen says she sees rate hike this year
-- Bounce in China shares also lifts risk appetite
Eurogroup President Jeroen Dijsselbloem said on Friday euro zone finance ministers may make a "major decision" when they hold an emergency session on Saturday to weigh the Greek proposal. Many in the market were optimistic about an agreement, although investors were cautious about holding large bets going into the weekend. Kathy Lien, managing director at BK Asset Management in New York, said there were concerns Germany could still block a deal. A German finance ministry spokesman said on Friday Berlin will not accept any form of debt reduction for Greece that would lower its real value.
"We still believe a deal will be done but being exposed to euros ahead of these meetings is risky and we took profits on all of our positions before the weekend was out," Lien said. The euro climbed to a one-week high against the yen of 137.27 yen and was last at 136.84 yen, up 2.2 percent. The euro zone common currency posted its largest one-day gain since April 2013.
Against the dollar, the euro was up 1.0 percent at $1.1145 as Athens sent a proposal for reforms to its creditors. . It hit a one-week high of $1.1215 and had its best daily performance in a month. Also helping risk sentiment were signs Chinese equities may have stabilized after their recent 30 percent fall. Shanghai shares rallied for a second straight day, helped by emergency steps taken by the government. The yen retreated, allowing the greenback to rise above 122 yen from a seven-week low posted mid-week. The dollar was last up 1.2 percent at 122.80.
Gains in the dollar accelerated after Federal Reserve Chair Janet Yellen said she expects the Fed to raise interest rates at some point this year. Yellen's remarks were nothing new, said Greg Anderson, global head of FX strategy at BMO Capital Markets in New York. "But the context had a little bit more uncertainty and therefore for her to steer through that and say an interest rate rise is likely to be appropriate, that was a ... hawkish surprise".