By Jemima Kelly
LONDON (Reuters) - The euro surged above $1.21 for the first time in three years on Friday, on growing expectations that the European Central Bank hinted is getting ready to wind down its massive monetary stimulus program.
The single currency had already rallied on Thursday, after ECB policymakers said in minutes of the bank's December meeting that they could revisit their communication stance in early 2018.
Investors took the relatively hawkish statement as a signal that the ECB will wind down its 2.55 trillion euro ($3.07 trillion) bond purchase scheme this year if Europe's economy continues to hum along, and that it will start moving towards interest rate hikes.
The euro soared 0.8 percent to as high as $1.2134
"We all know that the ECB tapering is coming but now it's about the timing, and yesterday's minutes suggested there's a growing dissent among ECB members about waiting too long," said ING currency strategist Petr Krpata in London.
"The sooner the market realises that the end of ECB tapering is coming, it will start asking itself what the next step is, and that's ECB rate hikes. That's not priced in yet," he added. The bank sees the euro at $1.30 by the end of the year.
The dollar was also pressured by data on Thursday that showed U.S. producer prices fell for the first time in nearly 1-1/2 years in December, which could temper expectations that inflation will accelerate in 2018.
Against the yen, the dollar hit a six-week low of 111.00 yen
It was still down a steep 1.7 percent for the week, with the Japanese currency having soared as a routine operational reduction in bond purchases by the Bank of Japan triggered speculation that the central bank would unwind its massive stimulus.
"Yen short positions had been building, and investors seem to be looking for opportunities to trim them," said Yutaka Miura, a senior technical analyst at Mizuho Securities.
Japan's economy minister on Friday suggested it was possible for the government to declare an end to deflation before consumer prices reach the BOJ's 2 percent inflation target.
Bitcoin (BTC=BTSP) was up 1.8 percent at $13,485 on the Luxembourg-based Bitstamp exchange. It skidded over 11 percent in the previous session after the government of South Korea, a crucial source of global demand for cryptocurrency, said it was considering a plan to ban cryptocurrency trading.
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