Euro rallies on Greek deal optimism; Yellen helps dollar

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The euro advanced across the board on Friday, jumping more than 2 percent against the yen, on optimism Greece was making progress in efforts to secure funding and stay in the euro zone.

The yen and the Swiss franc, which tend to do well during turmoil in financial markets, both lost ground as demand for riskier assets also picked up after Chinese shares rebounded.

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, although there was a degree of caution about holding large bets going into the weekend.

A deal on Greek's debt over the weekend would ease some of the uncertainty surrounding the euro, said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

"The problem, though, is that it would expose a fundamental wound for the euro, the bloc's weak economy which remains in need of the ECB's (European Central Bank) strong policies of rock-bottom interest rates."

The euro climbed to a one-week high against the yen of 137.27 yen and was last at 136.68, up 2.1 percent. The euro zone common currency was on track for its largest one-day gain since April 2013.

Against the dollar, the euro was up 0.87 percent at $1.1132 as Athens sent a proposal for reforms to its creditors.It hit a one-week high of $1.1215 and was on pace for 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 from the government to halt their dive.

Grexit could cause NATO issues: Admiral
Grexit could cause NATO issues: Admiral

The yen retreated, allowing the greenback to rise above 122 yen from a seven-week low mid-week. The dollar was last up 1.2 percent at 122.81.

Read MoreWill the Fed's Greek worries keep rate hike at bay?

Gains in the dollar accelerated after Federal Reserve Chair Janet Yellen said on Friday she expects the Fed to raise interest rates at some point this year.

Greg Anderson, global head of FX strategy, at BMO Capital Markets in New York, said Yellen did not say anything different from what she had said in the past

"But the context had a little bit more uncertainty and therefore for her to steer through that and still say an interest rate rise is likely to be appropriate, that was a... hawkish surprise."