Yesterday's remarks from Fed Chairman Bernanke that the ''recession is likely over'' has spurred the risk trade higher.  Stock markets have gained across the board, EUR/USD is testing the water above the 1.4700 level and the AUD and the NZD have been seen even greater gains vs the greenback.  Once again the gains in the JPY are counter to the general mood of the market but reflect an apparent nonchalance in the tone of the new Japanese government towards yen strength. 

The new Japanese government officially took office today.  As expected Fujii has been appointed Finance Minister and his remarks on fx markets that ''I don't think they are fluctuating rapidly now'' offers not even a whiff of discomfort with JPY strength.  Earlier this month Fujii indicated that he was not in support of a weak yen.  The tone of the new government with respect to the yen has limited the fear in the market with respect to the potential for intervention against yen strength (last seen in 2004).  One consequence of the gains in the JPY has been the step up the preference of the USD as a funding currency. Low interest rates, the US's huge budget deficit, weak current account position combined with the likelihood of no rate hike from the Fed potentially until the middle of next year are a collection of weak fundamentals.  That said, the warnings from the Fed's Bernanke and the BoE's  King yesterday referring to a weak economic outlook for some months reinforces the fact that the global economy is not out of the woods yet.  The USD still stands to benefit from any pullbacks in risk appetite.

UK economic data offered few surprises this morning.  The Aug claimant count rose by 24.4K, when considered with the revision to the July data, this number was very close to market expectations.  The ILO unemployment rate was a little lower than expected at 7.9% though this was the highest rate since 1996.  While the pace of job losses in the UK has slowed, the high levels of unemployment should be viewed in light of the comments from the BoE's King yesterday that spare capacity in the economy is bearing down on inflationary pressures. Sterling has recovered most of its overnight losses vs the EUR.   However, the accommodative tone of King yesterday suggests that the pound will likely be vulnerable ahead of next month's MPC meeting.   Cable is little changed from last night's close at present having also recovered its overnight losses. 

The gains in the AUD overnight were encouraged by the 1.1% rise in the Westpac leading index.  The surge in NZD/USD pushed it back to levels not seen since August 2008.  Eurozone CPI was as expected at -0.2% y/y in August.

This afternoon, US CPI, industrial production, current account and TIC flow data are due. Canadian manufacturing sales figures will also be released.