The U.S. dollar finished a rather volatile trading week with modest gains against most of the major currencies. The dollar began last week's trading down about 150 pips against the euro, but eventually closed the session with a 70 pip gain. A similar trend took place against the British pound.

The dollar weakened against most of the major currencies until last Thursday, as reports showed that the U.S. economy is recovering faster than expected. The global demand for long-term U.S. financial assets rose in June from a month earlier as investors abroad bought treasuries and agency debt and sold stocks. Net buying of long-term equities, notes and bonds totaled $44.4 billion for the month, beating expectations for $36.3 billion, and well above $35.3 billion in May. In addition, the U.S. Producer Price Index (PPI) rose for the first time in 4 months in July. This has eased concerns for deflation in the U.S. and was interpreted as another signal that the U.S. economic recovery is advancing, and that a global recovery might quicken it's pace as well. As a result, investors looked for higher-yielding assets, such as the euro and the pound.

However, disappointing data from the U.S. economy released on Thursday had turned the trend around. The weekly Unemployment Claims showed that 500,000 individuals filed for unemployment insurance for the first time during the past week, failing to reach expectations for 478,000 requests. In addition, the Philly Manufacturing Index showed that manufacturing in the Philadelphia region unexpectedly shrank in August for the first time in a year. These reports have crated uncertainty regarding the recovery of the U.S. economy, and as a result turned investors to open long positions on the safe-haven dollar.

As for the week ahead, many interesting economic releases are expected from the U.S. Traders are advised to focus on the Existing Home Sales, Core Durable Goods Orders, New Home Sales, weekly Unemployment Claims and the Preliminary Gross Domestic Product publications, as there are likely to have the largest impact on the dollar.