Dollar surges to 1-month high vs. euro

Greenback gains on improved consumer confidence and falling oil prices.

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By Lara Moscrip, CNNMoney.com contributing writer

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NEW YORK (CNNMoney.com) -- The dollar rallied to a one-month high Tuesday against the euro, following stronger-than-expected U.S. consumer confidence data and slumping oil prices.

The euro bought $1.5588 Tuesday, down from $1.5742 late Monday. The dollar gained against the yen to ¥108.09 from ¥107.47.

The uptick in July's consumer confidence numbers reverses six previous months of losses, renewing some optimism in the economy.

"The consumer confidence data is the key driver as to why we're seeing the dollar higher," Dustin Reid, a currency strategist at ABN AMRO.

For the dollar to really gain traction to the upside, the equity markets would need to remain in rally mode and Friday's upcoming tally of job losses would need to fall short of the consensus, said Tom Benfer, vice president of foreign exchange at Bank of Montreal.

"We need equities to hold up in order for this dollar rally to continue. We broke the low we saw last week, and if equity markets can hold onto these gains, it would be positive momentum," Benfer said.

Stocks rallied Tuesday afternoon, with the Dow surging more than 266 points, on the back of the consumer confidence report and a slump in oil prices.

Oil prices slid below $121 a barrel on Tuesday, hitting the lowest level in more than two months at one point. Gas prices also continued to drop, staying below $4 a gallon and marking the 12th straight daily decline.

The trifecta of upbeat news helped the dollar sustain its gains.

"As gas prices and oil prices come down, it impacts sentiment in the dollar as well, it helps people buy the dollar. People like to buy U.S. dollars when there's a positive feel to the economy, when consumers feel like they're going to spend," Reid said.

Lower oil prices are a big contributor to reviving consumer optimism. That translates to "stronger economic growth in the future, and therefore a stronger economy. It means perhaps there's a light at the end of the tunnel," Benfer said.

The dollar's gains against the euro came amid weak European consumer confidence reports released Tuesday. Dutch consumer confidence is at its lowest level since records began 25 years ago, and French consumer confidence has fallen to its lowest level in more than 20 years.

Stocks: Stocks gained back the prior session's losses, as investors welcomed strong financial results, the boost in consumer confidence, sinking oil prices and Merrill Lynch's (MER, Fortune 500) $5.7 billion writedown. (Full story).

Bonds: The surprise jump in consumer confidence and falling oil prices pushed down Treasury prices as investors profited from an earlier upswing. (Full story). To top of page

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