Let's review. A frightening health scare capable of bringing trade to a standstill received the deserved attention of world governments before investors started trading this week. U.S. growth, or more accurately a contraction in growth, came in about half as bad again for the second quarter. Joblessness continues to soar  - in the Eurozone the rate of unemployment reached 8.9% in April, while 6.27 million Americans continue to claim benefits this week. One of the big three automakers filed for Chapter 11 bankruptcy. And so the stock market put in its best month for nine years, while the euro is marginally higher. Dropping in from another planet, you'd be forgiven for thinking that the world has gone mad.

The fact is that investors are piecing together all of the signs showing a moderation in the rapid downturn and gleefully accepting that such a sign looks very much like a recovery. You can't fool central bankers though, eager to warn that the struggle to growth will be a hard fought slog from here. But it appears that investors are happy at the crumbs falling off the table and are positioning for better risk appetite ahead. Premature perhaps, but investors clearly don't want to miss the boat.

Consumer confidence rose for a second month according to the university of Michigan survey. The ISM manufacturing index also rose to 40.1 while the prices paid component dropped, highlighting the potential tussle the economy might face later with declining prices.  Today's data confirms the Chinese PMI released earlier, which at 53.5 remained in expansionary mode. There is a school of thought that says the Chinese yuan is sapping demand for Japanese yen as a safe haven. We'd view this as more of a recovery play, but as the importance and size of the Chinese economy increases this theme will likely morph.

Despite weakening against the euro this morning to $1.3262, the dollar is only marginally weaker on the week, which is also evident in the tiny weekly decline in the dollar index. Meanwhile the bigger move was seen in the decline of the yen, which at ¥99.30 this morning is 2.2% lower on the week. And with good reason too.

The yen was a big beneficiary of the fear that arrived with the swine flu on Monday. When currency markets stress tested investors' fear on Tuesday, the yen rallied to ¥95.62 against the dollar, over concern that the global economy might face a second wave of export declines. We noted at the time that such a move into the yen was likely to backfire and said that investors how drive the yen up earlier in the year fearing global financial collapse had broken the yen's status as a safe haven by their action. Others note that for Japan to expand its exports and drive growth, a far more appropriate rate of exchange lies somewhere in the region of ¥110 - ¥115 – a figure which we can see investors gunning for once the dollar breaches its immediate hurdle of ¥100 perhaps even today.

Overnight national and core CPI data highlighted the deflationary risks facing Japan with a 0.3% year-over-year reading. The likelihood of further government spending remains high via fiscal stimulus if only to counteract falling prices via induced consumption. Unemployment continued to rise and at 4.8% according to the latest data, that's the highest reading since 1967. We feel it foolhardy to argue for a stronger yen should global risk aversion pick up the pace. The yen should be ditched if only to help alleviate the stranglehold the unit has on struggling exports.

Another confounding currency remains the British pound, which is up once again against the dollar at $1.4883. A recent one-month blip in stronger house prices was reversed within this week's data while fresh lending data today produced an inline result. However, net new lending was weak indicating that, just like in the U.S. plenty of homeowners are refinancing at lower rates in an effort to increase disposable income. The truth is that as data ameliorates the pound is likely to continue to benefit. We are not quite sure what will restart a down turn for sterling's fortunes at this point especially if the recent budget outcome hasn't managed to tear a strip off it. Recent PMI manufacturing data rose to 42.9 and while an improvement, once again we feel ourselves compelled to note that this is a reduction in the pace of contraction.

Both Aussie and New Zealand dollars are picking up on the recovery theme also. The Aussie is once again rather perky against the dollar having recovered to 72.61 on the tide of growing global optimism. One might target 75 cents as the next logical target here.