Dollar mixed as sentiment improves

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NEW YORK (CNNMoney.com) -- The dollar was mixed against major currencies on Friday as two better-than-expected economic reports gave the market hope, but rising inflation and higher oil prices weighed.

"There is really a lot of mixed information being thrown at the market," said Tom Benfer, director, foreign exchange, at the Bank of Montreal.

The euro bought $1.4670 Friday afternoon, down from $1.4707 late in the day Thursday.

The greenback fell against the yen, however. The dollar bought ¥108.82 on Friday, less than ¥109.50 late in the previous day's session.

The dollar seemed to be shrugging off higher oil prices and a falling stock market and paying more attention to a couple of positive economic reports, said Benfer.

The Chicago Purchasing Managers Index and a revised University of Michigan's consumer sentiment number both came in above forecasts. Chicago PMI was 57.9 for August vs. economists' expectations of 50, according to Briefing.com. The revised August Michigan reading was 63; economists expected 62.

After the reports were released this morning, the dollar began to recover from overnight lows, Benfer added.

"The Chicago number totally surprised the market and the University of Michigan, to a lesser extent," said Benfer. "[The reports] showed that there is life in other parts of the economy - signs of hope."

However, personal income fell 0.7% in July, according to a Commerce Department report Friday. Meanwhile, consumer spending ticked up 0.2% in real terms, but fell 0.4% in inflation-adjusted terms, according to the same report. An inflation gauge called the core personal consumption expenditures index - which excludes food and energy - rose 2.4% in July, according to the Commerce Department.

"Unless inflation prices moderate, the Fed could be forced to raise rates," said Gareth Sylvester, senior currency strategist at HIFX in San Francisco, although in the face of a struggling economy, doing so would make growth more difficult. "That leaves the Central Bank's hands tied," said Sylvester, and "leaves the market mixed."

Adding to market uncertainty, oil prices were higher Friday as investors and traders waited to see where Tropical Storm Gustav would land. With nearly a quarter of the nation's production rigs in the Gulf of Mexico, a blow to the oil infrastructure there would decrease crude supplies, and send prices higher.

If Gustav "starts to hit refineries, that could feed through into oil prices and may weigh on the U.S. dollar," said Sylvester.

The dollar rose against major foreign currencies on Thursday after the nation's second-quarter gross domestic product was revised much higher-than expected. The Commerce Department said the nation's GDP surged at an annual rate of 3.3% in the second quarter, adjusted for inflation, surpassing last month's initial estimate of 1.9%.