The major currencies were mixed on the Friday session amid a dearth of fresh economic news. However, the greenback took solace in a better-than-expected earnings report from Citigroup, propping the currency to above the 107-level against the yen to 107.08. Markets lauded Citigroup's earnings report, which revealed a $2.5 billion loss in the second quarter, considerably better than consensus estimates for a loss of $3.67 billion.

The dollar also benefited from continued weakness in oil which declined for its fourth straight session to $128.91 per barrel amid easing geopolitical tensions. Iran's foreign minister Mottaki said ¡°there may be talks on both the US founding an interest preserving bureau in Iran and direct flights between the two countries, raising the prospects for improved diplomatic relations and to quell recently heightened tensions.

Meanwhile, Minneapolis Fed President Stern delivered a hawkish tone, saying the Fed cannot delay tightening rates until financial markets are normal, and the economy is growing robustly. Stern added that the Fed's actions will affect the economy in the future, not at the moment. Despite the current inflationary environment, the economic outlook remains bleak as expressed by Fed Chairman Bernanke earlier this week in which he delivered a downgraded assessment of the economy in contrast to the latest FOMC policy statement. Bernanke warned about significant downside risks to growth in conjunction with continued upside inflation risks. Our outlook remains unchanged and we continue to look for the Fed to remain on hold until December, at which point we anticipate a 25-basis point rate hike to 2.25%.

The G7 economic calendar for next week sees a barrage of market moving reports. The data from the UK consist of the Bank of England's monetary policy minutes, June retail sales, and Q2 GDP. The minutes from the BoE's policy meeting will be closely scrutinized in light of further deterioration in UK economic fundamentals and persistent inflationary pressure. However, with renewed fears that the continued deterioration in the economy would drag the UK into recession, there has been speculation that the BoE will need to cut rates to stimulate growth. It will be interesting to assess the discussions from the MPC's recent meeting to gauge how likely the Bank is to ease policy and whether it deems the latest downturn in the economy to warrant a move.