The Munich-based Ifo Institute’s July German business climate index rose for the fourth-consecutive month in July, posting a reading of 87.3. Economists had forecast a rise to 86.5 from 85.9 in June.

Also, the preliminary Markit euro-zone composite purchasing managers’ index for July increased more than forecast.

The euro saw a modest jump versus the dollar after the data.

“All positive, but let’s not get carried away,” wrote strategists at Brown Brothers Harriman. “Germany’s Ifo index … is on the rise … but remains very low on a historical basis and Germany’s economy is still on track to contract by at least 5% this year.”

In economic news, U.S. consumer sentiment fell in July, according to a survey released yesterday by the University of Michigan and Reuters.

Sentiment rose to a revised 66.0 from a reading of 64.6 in early July, but was down from the June reading of 70.8.

Analysts said the report highlights depressed levels of confidence as well as likely slow growth ahead.

“The July drop-back in confidence at still-depressed levels highlights the anemic pace of growth that appears likely as we enter the early quarters of the recovery,” wrote Mike Englund of Action Economics.

“While off the lows that were recorded when panic and paralysis were the order of the day, this measure of consumer sentiment nonetheless remains severely depressed,” wrote Joshua Shapiro, chief U.S. economist of MFR, Inc.

Source: Dollar Moves Lower

Meanwhile, the inventory of unsold homes on the market fell 0.7% to 3.82 million in June. This is reportedly a 9.4-month supply at the June sales pace, down from 9.8 months in May.

“The housing market appears to be healing,” said Lawrence Yun, the NAR’s chief economist. Yun said that inventories would have to be at a seven-month supply to get price stabilization. He said prices could stabilize “around the end of the year.”

The NAR report sparked a debate about whether the housing market has really turned a corner.

Some say yes, some say no, and some are on the fence.

“Housing may no longer be the weakest link,” said Joel Naroff, president of Naroff Economic Advisors.

“The economy is still losing jobs, credit is still tight, mortgage rates are a bit higher than they were in the second quarter, and the tax credit for first time homebuyers, which is boosting sales, expires at the end of November,” said Patrick Newport, U.S. economist at IHS Global Insight.

“The acid test is whether sales can push on beyond the pre-Lehman trend of just under five million over the next few months,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Source: Dollar Inches Up on Euro

“Revisions and volatility of the monthly index make it hard to draw any conclusions, but the seasonally-adjusted HPI for the first five months of this year is up 0.3% or 0.7% on an annualized basis,” said FHFA Director James Lockhart.

The FHFA monthly index is calculated using purchase prices of houses backing mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac. For the nine Census Divisions, seasonally-adjusted monthly price changes from April to May ranged from -2.0% in the New England Division to +2.7% in the Pacific Division.

Meanwhile, mortgage applications rose a seasonally adjusted 2.8% last week from the prior week, overcoming higher interest rates charged on fixed-rate home loans, according to the Mortgage Bankers Association’s survey released yesterday.

The latest results, for the week ended July 17, mark the third straight week of greater activity in mortgage applications.

Last week’s applications were up an unadjusted 6.6% from the same week last year. The Washington-based MBA’s survey covers about half of all applications filed for retail residential mortgages.

Source: Dollar Retreats

“Since the start of the financial crisis of 2007 there has only been one trade across all the capital markets — risk on or risk off. As equities collapsed, the dollar and the yen gained while the euro, the pound and the Aussie along with oil and gold declined,” said Boris Schlossberg, director of currency research at GFT.

“As the recovery trade took hold the process has reversed and all the risk currencies have marched almost lock in step with equity prices,” Schlossberg added.

In economic news, Bernanke was back in front of Congress yesterday, spouting economic fallacy after fallacy that the news media eagerly lapped up and politicians grossly mis-analyzed.

The always-vocal Rep. Barney Frank, the Democratic chairman of the House Financial Service panel, said that all the talk about inflation missed the point.

“The great mistake” to worry about, according to Frank, would be a “premature unwinding” of the Fed’s accommodative policy [meaning loose monetary policy and artificially low interest rates].

One reporter explained it like this: “In medical terms, if the Fed removes the medicine it has given the economy too soon, it could cause a relapse and another sharp drop in economic activity. On the other hand, if the Fed is too slow to remove the medicine, the economy could overheat, causing inflation.”

Too bad the medicine they’ve prescribed is the very thing that made the patient sick in the first place.

Source: Dollar Regains Some Ground

Analysts attributed the dollar’s slight rise and thin trading on Friday to apparent mujahideen bombings in Jakarta.

The Associated Press reported that eight people were killed and at least another 50 injured in a pair of powerful blasts. The explosions occurred around the Megan Kunigan business area of the Indonesia capital, where the JW Marriott and Ritz Carlton hotels and some embassies are located.

“A preference for safe-haven assets has been clear in the wake of the two bombings in Indonesia overnight,” said Jane Foley, research director at Forex.com. “The currency moves, however, have been relatively muted,” she said.

The dollar index, which tracks the greenback against a trade-weighted base of six major rivals, was at 79.475, up from 79.222 late Thursday.

In economic news, the Commerce Department reported yesterday that construction of new homes and apartments picked up to the fastest pace in seven months during June.

Housing starts rose 3.6% to a seasonally adjusted annual rate of 582,000, the highest figure since November. Building permits also increased, rising 8.7% to 563,000, the strongest reading since December.

The starts figures for June came in stronger than the 531,000 annual rate expected by economists surveyed by MarketWatch.

Economists said starts had fallen about as far as they could. Now there are some new incentives in the market that are luring back potential buyers.

Analysts were willing to say that starts have hit the bottom, but were more cautious to predict a rebound given the overhang of unsold homes on the market.

“One could interpret this report as somewhat bitter-sweet,” said Millan Mulraine, economics strategist at TD Securities in Toronto.

“On the optimistic side, it appears that residential construction activity may have stabilized…on the other hand, with sales continuing to lag behind the level of building activity by a factor of 200K, this up-tick in construction will likely mean that the inventory of unsold homes could continue to rise,” Mulraine said.

Source: Dollar Jumps Slightly

“Our expectations of improved risk appetite over the coming months point to further U.S. dollar weakness,” they added in a research note.

On the economic front, it’s still looking pretty gloomy out there.

While first-time claims for state unemployment benefits fell in the latest weekly data (after seasonal adjustment) continuing claims hit a record high, the Labor Department reported yesterday.

The number of initial claims in the week ending July 4th fell 52,000 to 565,000 – the lowest level since January. But this is no reason to jump for joy.

The drop in initial claims is not a “green shoot,” forecasting a return to healthy economic growth, wrote Dan Greenhaus of the market strategy group at Miller Tabak in a research note.

“We must not lose sight of the fact that 565,000 is an absolutely terrible reading for weekly claims and, in fact, the highest reading in the most recent recession was 517,000 following Sept. 11,” Greenhaus wrote.

Thanks for putting things into perspective Mr. Greenhaus.

Source: Dollar Falls

The yen and pound also sagged. “Fear, trepidation, use any term you like to describe the market bias today, but one thing is for sure, the term ’safe haven’ is back en vogue,” said Dan Cook, of IG Markets..

Traders were keeping a close eye on the G-8 summit that opened yesterday in Italy. But most analysts believe that the policy makers of the biggest economies will focus on ending the global recession, and improving credit and trade, instead of debating the status of the buck.

“Any discussion about the U.S. dollar’s reserve status being challenged has been heavily played down in recent days and draft communiqués that have been leaked indicate no reference to this issue,” said Christian Lawrence, rates and foreign-exchange strategist at RBC Capital Markets.

That could affirm the resignation on the part of Chinese officials and others who may have concluded, albeit reluctantly, that a fall in the dollar would be too self-defeating for those holding large dollar reserves.

“There seems to be a recognition among a growing number of administrations that it would be better to avoid a fresh slide in the U.S. dollar from here,” wrote Simon Derrick, chief currency strategist at Bank of New York Mellon.

Source:Buck Advances vs. Most Currencies

The euro got an initial boost as the Economy Ministry in Berlin said German factory orders expanded 4.4% in April. That marked the biggest advance in two years for the zone’s largest economy, but its influence petered out quickly.

A lack of clear direction could be ongoing. “The markets are looking very indecisive at this point,” said T.J. Marta, chief strategist at Marta on the Markets. “It could be the exhaustion of investors and traders, having just priced in — and then out — financial Armageddon. It could also be the cross currents of data, as investors are barraged by conflicting reports.”

There is also caution ahead of the G-8 summit, commencing today in Italy. It’s expected that the meeting will feature renewed debate over whether the U.S. dollar should be replaced as the world’s reserve currency.

The issue isn’t specifically on the agenda for G8 leaders, but officials from Russia and elsewhere have said it will be discussed.

Prefiguring the tone of the discussion, Kremlin aide Arkady Dvorkovich said that, “China and Russia will state their stance that the global currency system needs smooth evolutionary development and this is connected with the creation of several regional reserve currencies, which may then become international.”

Source: Dollar Moves Higher

Chandler also cited the upcoming G-8 summit, saying that “people are nervous about getting too long (on the) dollar ahead of the events of this week.”

Of the day’s hard number, analysts at Action Economics said that “a better than expected non-manufacturing ISM report, helped Wall Street eventually turn positive, which weighed the dollar down once again.”

The Institute for Supply Management reported yesterday that its nonmanufacturing index rose to 47.0% from 44.0% in May.

Ahead of the G-8, Suresh Tendulkar, a senior official in the Indian government, said he’s urging India to diversify its foreign-exchange reserves and hold fewer dollars, Bloomberg reported. India will be sending unofficial representatives to the meeting, along with other non-members China, Brazil, Mexico, South Africa and Egypt.

Meanwhile, Marketwatch.com wrote that “Russian President Dmitry Medvedev told Italian media the dollar-based reserve system is flawed but that ‘there is no alternative to the U.S. dollar or the European currency,’ according to news reports.”

Source: Dollar Gains on Euro

The unemployment rate edged up to 9.5% from 9.4% in May, not quite as bad as the 9.6% expected. All told, the data “strongly suggest that consensus forecast for a second half recovery is overly optimistic,” said Steve Ricchiuto, chief economist at Mizuho Securities in New York.

Some analysts tried to pretty things up by pointing out that the job loss trend is improving, but Millan L. B. Mulraine, of TD Securities in Toronto, wasn’t having any. “On the whole, this was a very ugly labor market report, and there is no amount of lipstick that can improve its image,” Mulraine said.

Across the pond, the ECB left unchanged its key lending rate, as expected, and stuck with the amount of covered bond purchases in its plan. At the same time, the statistics agency Eurostat reported that the unemployment rate in the 16-nation zone matched the US, rising more than expected to a 10-year high of 9.5% in May from 9.3% in April.

And Marketwatch.com reported that, “China hopes for diversification of the international currency system in the future, and this topic could be addressed at the Group of Eight leaders’ summit next week in Italy, Chinese Vice Foreign Minister He Yafei said …

“The international financial crisis has fully exposed weaknesses in the international currency system, He reportedly said, and China hopes that the system can diversify.”

Source: Dollar Rises