The greenback traded near its lowest level this year against a basket of currencies on speculation the global economy is on the path to recovery from the worst recession since the Great Depression, reducing demand for safe-haven assets. The dollar index last traded at 78.635, close to the 78.334 level it reached on June 2. In addition, at the start of the U.S.-China Strategic and Economic Dialogue, both U.S. president Obama and Treasury Secretary Timothy Geithner urged Beijing to encourage more domestic consumption but did not repeat appeals to revalue the Chinese Yuan. Geithner also pledged the U.S. will reduce its budge deficit over the next four years and boost national savings.

Earlier in the day, Fed Chief Bernanke said that growth in second half of '09 may not be enough to bring down the U.S. jobless rate and that the Fed supports a strong dollar policy. Euro dropped to as low as 1.4172 after his comments, however, the single currency found buying interest on dips and hit a seven-week high of 1.4299 against the dollar as gains in equities encouraged investors to be more risk-aggressive. Furthermore, German consumer sentiment rose to its highest level in over a year going into August as easing inflation left shoppers more willing to spend. In New York morning, U.S. new home sales data came in better than expected (384,000 units annual rate versus economists' forecast of 350,000 units). Euro retreated from 1.4299 to 1.4204 as investors saw that the increase in home sales were supported by a 6-10% fall in house prices.

The British pound rose against the dollar on Monday as confidence in the strength of corporate earnings continued to support European equities (FTSE-300 index ended the day at its highest close since November 10) and helped sterling recover losses after last week’s much weaker-than-expected U.K. GDP data. Cable hit an intra-day low of 1.6382 in Asia and rose to as high as 1.6525 versus the greenback in European morning. The Bank of England said on Monday that British corporate credit conditions improved in the second quarter of the year, partly due to the central bank’s asset purchases. BoE also added that a rise in gilt yields over the period was related to expectations of higher BoE interest rates in the future and faster growth or inflation.

The Japanese yen weakened against higher-yielding currencies on Monday as safe-haven demand declined. Euro, aussie and sterling rose against the yen from 134.26 to 136.11, 77.20 to 78.62 and 155.20 to 157.47 respectively. Dollar also strengthened versus the yen from 94.67 to 95.39.

Data to be released on Tuesday include New Zealand trade balance, Australia NAB business confidence, U.K. CBI distribution trade, U.S. consumer confidence.