The euro continues under pressure, losing ground yesterday against both the pound and the dollar after the inconclusive G20 meeting last week.
In a day short of UK data, the markets instead were fully focused on the ongoing political and economic concerns surrounding Greece and Italy.
The yield on Italian 10-year bonds rose to an euro era high of 6.66%. Confidence levels in the euro zone’s third largest economy has fallen sharply recently and speculation is rife that Italian Prime Minister Silvio Berlusconi is preparing to step down.
Comments from European Central Bank Governing Council member Yves Mersch also sparked market jitters. Mersh was reported to have said ECB policy makers could decide to stop buying Italian debt if the government fails to show it is following economic restructuring plans.
The main Greek political parties are now racing to try and rebuild the trust of the international community through the creation of a unity government to obtain the next tranche of aid from the ‘troika’ of external creditors before the country runs out of funds at the end of November.
A report on Greek TV suggested that the main political parties were inching forward in their search for a political agreement on a unity government this afternoon. However, government spokesman Angelos Tolkas told state-run NET TV that the major sticking point is that the leader of the main opposition party continues to demand that current Prime Minister George Papandreou should step down as a condition for his party participating in a coalition government.
Media reports also suggest that former European Central Bank vice-president Lucas Papademos is the name most often mentioned as the possible head of a new unity government.
Goldman Sachs reported that underlying UK GDP growth has slowed sharply in the past 3-6 months and while the downturn has been driven by external rather than domestic factors it has still been severe. Of concern, private sector employment growth is no longer more than offsetting public-sector job losses.
Today sees the publication of a raft of UK economic data, none of which is likely to enhance the position of sterling in the markets although the ongoing euro zone sovereign debt crisis should continue to take centre stage as Italian premier Berlusconi faces a vote of confidence in Parliament later.
