The US dollar and Japanese yen were among the weakest major currencies as US equities and FX carry trades made headway amidst broad improvements in risk appetite a day after Federal Reserve Chairman Ben Bernanke said the US recession has probably ended. US economic data was fairly supportive of Bernanke’s claims, as the consumer price index (CPI) rose 0.4 percent in August and the annual rate edged up to -1.5 percent from -2.1 percent. The increase was due primarily to energy costs, as we saw core CPI rise only 0.1 percent during the month while the annual rate slipped to 1.4 percent from 1.5 percent, the lowest since February 2004. The news is generally in line with Federal Reserve forecasts for “subdued inflation for some time.”
Meanwhile, US industrial production results for August reflected a 0.8 percent increase, indicating that output improved for the second straight month. As we’ve seen with other manufacturing reports, the increase was due almost entirely to a jump in auto demand from the “cash for clunkers” program that ended on August 24, and it will be interesting to see if the sector will hold up as well in light of the program’s completion.
Adding to the mix, data showed that the US current-account deficit narrowed in the second quarter to an 8-year low of $98.8 billion from $104.5 billion thanks to a smaller trade deficit as both imports and exports decreased.