Central banks in the United States, Europe, Japan, Australia and Canada added about US$135.7 billion (S$204.2 billion) to the banking system in an attempt to avert a crisis of confidence in global credit markets.

A US government report on Wednesday may show inflation slowing to an annual rate of 2.4 per cent last month.

'The markets are getting short-term relief,' said Mr Brian Dolan, chief currency strategist at Forex.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. 'Central banks want to stave off any panic.'

The US currency rose 0.3 per cent last week to 118.4 against the yen, from 118.05 on Aug 3. It was the first weekly gain since the period ended July 6, and the biggest increase since the week ended June 22.

The dollar also strengthened 0.6 per cent to US$1.3693 per euro, from US$1.3773. The euro fell 0.3 per cent to 162.13 against the yen, from 162.58.

'Any time you bring uncertainty into the market, your chances of maintaining a profitable position in the euro-yen diminishes greatly,' said Mr Joe Trevisani, chief market analyst at FX Solutions in Saddle River, New Jersey.

The US Bureau of Labour Statistics may report on Wednesday that annual consumer price inflation slowed to 2.4 per cent last month, down from 2.7 per cent during June. This is according to the median estimate in a Bloomberg News survey of 16 economists.

Excluding food and energy costs, core inflation may hold at 2.2 per cent.

The Federal Reserve last Friday, in a second day of action in concert with the European Central Bank (ECB), provided US$38 billion in reserves and pledged further funds 'as necessary', in a statement unprecedented since the aftermath of the Sept 11, 2001 terrorist attacks. The ECB lent 61.05 billion euros (S$126.9 billion) in funds after injecting a record amount on Thursday.

'The foreign exchange market is very skittish,' said Mr Paresh Upadhyaya, who helps manage US$29 billion in currency assets at Putnam Investments in Boston.

'The price action has been dominated by high volatility and investors are getting chopped up. No one feels that the credit issues are behind us.'

BLOOMBERG NEWS