Comments by the president of the European Central Bank bolstered the euro's rally as Mario Draghi said there were "tentative" signs of an economic stabilisation in the eurozone.
Concerns that the euro zone economy is struggling through a debt crisis, and may be in a recession while the US economy is slowly improving have pressured the euro and lifted euro-priced gold.
But in a positive development, Spain on Thursday sold twice as much three-year debt as it needed and Italy paid less than it did a month ago on one-year securities at their first auctions of 2012 as cheap money lent to banks by the ECB in December fuelled demand for shorter-term debt.
"The tide may turn around soon from extreme pessimism seen last year as people become less convinced the euro zone debt crisis would devastate global growth and wonder if it isn't time to start thinking positively," said Tetsu Emori, a fund manager with Astramax Co. in Tokyo.
"Sentiment drives markets, so if more people become bullish, prices, particularly in equities and commodities, will rise. It's now just a matter of when you make the switch."
ECB sees signs of stabilisation
Meanwhile, European Central Bank President Mario Draghi cited signs of stabilisation in the eurozone, which boosted the common currency.
As expected, the ECB left its key interest rate unchanged at a record low 1.0% at Thursday's policy meeting as it assesses the impact of back-to-back cuts and a slew of other measures unleashed late last year that are showing signs of helping fight the euro zone debt crisis.
"The ECB's decision to hold rates steady at 1% is enough sign of confidence that European financial leaders believe the eurozone economy will stabilise and the crisis can be managed," said Jonathan Lewis, chief investment officer at Samson Capital Advisors.
"Though criticised as cautious and slow moving, the ECB is demonstrating it is a staunch defender of the value of its currency."
"Draghi was less pessimistic than we'd expected. He didn't say the euro zone was heading towards recession or that there were major deflation risks and he was optimistic about the effects of the 3-year (cheap ECB loans)," said Richard Driver, analyst at Caxton FX.
"He acknowledges the downside economic risks but also said survey data has shown some signs of stabilisation. So that is offering a ray of sunshine, a hope that maybe they can skirt a recession," said Boris Schlossberg, head of research at GFT Forex in Jersey City, New Jersey.
Spain's risk premium, the spread between yields on Spanish and German benchmark bonds, narrowed to its tightest level since January 3 after the auction results and the yield on its 10-year bonds eased to 5.14%, near the low for the year.
The yield on Italian 12-month bills fell to 2.735% from the near-6% Italy paid to sell one-year paper at a mid-December auction and the lowest level since June 2011.
Many worries remain
Many eurozone worries remain, however.
Another European bond test is expected Friday, when Italy offers up to €4.75 billion of debt.
Also, Greece has said it may need more money from European partners if not enough private creditors sign up for a voluntary swap of bonds to cut the country's debt burden.
