The dollar was softer on Thursday, drifting lower to 1.5800 against the euro and 106.69 versus the yen. Fears of °ongoing financial turmoil, as described by Fed Chairman Bernanke in his Congressional testimony, continue to plague the currency. Nonetheless, Treasury Secretary Paulson tried to alleviate fears over the solvency of Fannie Mae and Freddie Mac, reaffirming that both are "adequately capitalized".

The US calendar was light today, with just the release of weekly jobless claims, which unexpectedly improved to 346k, down from 404k a week earlier. Traders will look ahead to tomorrow's May trade deficit and the July University of Michigan consumer sentiment survey, which remains mired near multi-decade lows. The July preliminary survey is seen declining to 55.5 from 56.4, while the expectations component is estimated to fall to 48.0 from 49.2.

Traders will also turn to reports from Canada on Friday, consisting of May trade balance, and the June labor report. The unemployment rate is expected to remain unchanged at 6.1% while the employment change is seen increasing to 10.0k from 8.4k. The trade surplus for May is estimated to decline to C$5.3 billion, from C$5.11 billion a month prior.

Bank of England Stands Pat

The BoE, as expected, left monetary policy unchanged at 5.0% when it announced its decision earlier in the session. Despite inflation creeping higher, deteriorating fundamentals continue to plague the UK economy prompting speculation that the next move by the Bank may actually be another rate cut. In an interview with Bloomberg, former BoE board member Goodhart said that "output is going to fall, unemployment is going to rise, possibly quite sharply¡±, adding that the ¡°economy is getting into quite a recession". He offered a grim assessment for the outlook, saying "it's as difficult and as serious a situation as the MPC has ever had to face".

Data released overnight reaffirmed the dire state of the UK housing market with Halifax house prices declining by more than forecast. The June Halifax price index fell by 2.0%, missing calls for an improvement for a 1.0% decline from a 2.4% loss in May. The annualized figure plunged by 6.1%, sharply greater than the 3.8% drop in the previous year.

In the coming weeks, markets will digest several key UK reports to provide further insight into the state of the economy, with CPI, unemployment rate and GDP due out. Additionally, the minutes of today's BoE meeting will be released on July 23rd. The minutes will no doubt be closely scrutinized to gauge how concerned the MPC is with the deteriorating outlook for the economy and determine the probability for a BoE rate cut in the coming months.