After coming under selling pressure, the euro managed to find its feet on reports Italy’s Prime Minister, Silvio Berlusconi, had offered his resignation and Greece were close to forming a unity government in time to sign for more emergency financial aid. However, the controversial Berlusconi later rebuffed those claims and will now face a critical vote over his plans to fix Rome’s borrowing addiction which has now become the market’s latest obsession in the growing sovereign debt crisis. The euro is therefore likely to remain vulnerable and even more so after Italian bond yields rose to levels similar to what Ireland and Greece were faced with before their subsequent bailouts. The search for safe haven currencies continues after weak UK retail sales and house price data undermined sterling’s attraction while investors’ anticipate more intervention action from Japanese authorities. The Swiss franc tumbled across the board and appears off limits after negative consumer price inflation data prompted some panic-driven selling following the Swiss National Bank threat of more action to tackle deflationary threats to the Alpine economy.
Sterling
The pound is in close proximity of October’s multi-week highs against both the US dollar and euro however UK data released opens sterling up to the risk of profit taking.
US Dollar
Several members of the US Federal Reserve are scheduled to speak over the next few days, including Chairman Ben Bernanke, which could influence markets should any rhetoric on the subject of more quantitative easing spook investors. Otherwise, a very light local economic calendar leaves the US dollar in place to track developments in Europe which are expected to drive sentiment for now.
Euro
The euro recovered somewhat after threatening collapse as markets continue to consider the possibility of Italy crumbling under its mountain of debt while Greece try to form a unity government quickly in order to avoid bankruptcy.
Japanese yen
The Japanese yen continues to move within relatively tight ranges as investors try to gauge whether or not Japan will re-enter currency markets after they were caught short following Tokyo’s mammoth intervention move on October 31st. Moves in the Swiss Franc, another currency under direct manipulation from its central bank, would have acted as another warning that Japanese authorities may be ready to act again.
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