European Central Bank minutes show optimism - EUR/USD breaks above 1.20

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"China is starting to rebuild its forex reserves so it does not make sense economically that China would want to stop buying U.S. treasuries", said Shuji Shirota, head of macro economics strategy group at HSBC in Tokyo. It was on track for a more than 1.5 percent rise since Thursday - its strongest two-day performance since August.

The euro surged more than half of a percent against the dollar on the comments, with investors taking the relatively hawkish statement as a further signal that the European Central Bank will wind down its 2.55 trillion euro bond purchase scheme this year if growth continues to roar ahead.

European shares are expected to rise, with futures for German's Dax and France's CAC up 0.3 per cent and those for Britain's FTSE up 0.1 per cent.

The US dollar index traded marginally lower on Friday, extending the notable losses it posted on Thursday on the back of weaker-than-expected US producer price data and a stronger euro.

On the other hand, the benchmark German 10-year Bunds yield hit a five-month high of 0.532 percent after accounts of the ECB's December meeting showed it thinks it should revisit its communication stance in early 2018. Japan's Nikkei 225 and Topix indices traded lower by 0.2% and 0.6% respectively, but Hong Kong's Hang Seng index climbed 0.8%, trading at its highest since late 2007.

US stocks were higher in early trading after the S&P 500 suffered its first down day of the year on Wednesday.

Bitcoin was 11.5 per cent lower at US$13,185 on the Luxembourg-based Bitstamp exchange after South Korea's government said it plans to ban cryptocurrency trading.

"There's a palpable feeling that the euro and the yen will be among the best-performing currencies this year", said Bipan Rai, a foreign-exchange and macro strategist at Canadian Imperial Bank of Commerce.

DailyFX US AM Digest US Dollar at Three Year Low versus the Euro

U.S. Treasury yields fell after China disputed a report that its government officials had recommended the country slow or halt its purchases of the U.S. bonds.

In the USA bond market, benchmark 10-year notes last fell 3/32 in price to yield 2.5605 percent, from 2.549 percent late on Wednesday.

Gold prices on Thursday approached a four-month high set on the previous day after minutes of a European Central Bank meeting showed a more aggressive tone and boosted the euro against the US dollar.

In the US, the Labor Department reported that weekly jobless claims rose by 11,000 to 261,000 new claims, a three-month high.

Amundi's Defend said the gradual removal of liquidity from central banks would drive volatility higher across asset classes this year.

Gold contracts for February in the United States increased by 0.2 percent to stand at $1,322.50 an ounce.

Brent crude futures settled 6 cents higher at $69.26 a barrel, after hitting $70.05 a barrel during the session, its highest level since November 2014.

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