The euro was last up 0.4 percent at $1.0527 EUR= after briefly spiking to $1.0700, its highest since Dec. 8. It was down 3 percent against the dollar for the year.
The euro also soared against the Japanese currency. It was up 0.6 percent at 122.99 yen EURJPY= after touching 123.87, its highest since Dec. 15, but remained on track to shed 5.8 percent for the year.
"It`s a really thin market today, and suddenly offers disappeared and short-term players pushed the euro higher and took out stops. That`s all," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.
The dollar clawed back lost ground against the yen to stand at 116.77 yen JPY= after earlier touching 116.05, its lowest since Dec. 14. The dollar was down 2.9 percent for the year against the yen, but considerably pared its losses after the Nov. 8 U.S. presidential election.
Trump`s victory helped push U.S. Treasury yields to multi-year highs on expectations that his administration would embark on inflation-stoking stimulus policies, and the U.S. central bank would respond with more interest rate increases.
On Thursday, though, a strong U.S. 7-year note auction on the last full trading day of the year pushed down yields across the curve, undermining the dollar`s appeal.
The U.S. bond market will close at 2 p.m. Friday in advance of the New Year`s holiday weekend. Japanese markets will be closed Monday and Tuesday.
Sterling rose 0.1 percent to $1.2278 GBP=D4, moving away from a two-month low of $1.2201 plumbed Wednesday. It was down 16.6 percent in a year marked by Britain`s June vote to exit the European Union.
China`s yuan CNY=CFXS looked set to end the year down around 7 percent against the resurgent dollar, making it the worst performing Asian currency of the year.
China will change the way it calculates a key yuan index in the new year, nearly doubling the number of foreign currencies in a basket that is used to set the yuan`s value, its foreign exchange market operator said late on Thursday.
China has been promoting use of the index partly to divert attention from the yuan`s value against the dollar which has fallen near its lowest in 8-1/2 years.
By adding another 11 currencies, China will reduce the dollar`s weighting in the basket to 22.4 percent from 26.4 percent, according to currency strategists at Brown Brothers Harriman.
"Although the yuan is at an eight-year low against the dollar, it is near a four-month high against the current CFETS basket," they said.
Analysts said the change was in line with the central bank`s intention to discourage investors from exclusively tracking the yuan`s fluctuations against the dollar, but it would have limited impact on the Chinese currency, which is expected to weaken further against the dollar in 2017.
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