Failure by European Finance Ministers to agree on anything of note and the ruling out of further stimulus over the weekend has left risky assets somewhat bereft at the beginning of the trading week. Both EU and IMF officials are due to speak with the Greek government today to ascertain their eligibility for the next round of bailout funding. The euro has fallen this morning, erasing some of the gains it made after the joint dollar liquidity intervention made on Thursday. The fact is that the Greek situation has become, and been, untenable for a long time now and the politicians are starting to realize the voter discontent.

Nowhere is this more true than in Germany. Merkel’s Christian Democrats crashed to their 6 consecutive loss in German state elections yesterday with the main opposition party, the Social Democrats, winning out. This has increased the political uncertainty surrounding the euro amid the various bits of headline grabbing rhetoric from the anti-bailout lobby in places like Holland, Finland and Slovakia.

Sterling is once again under pressure this morning after Bank of England Chief Economist Spencer Dale said that the bank’s quantitative easing plan had “economically significant” effects on the UK’s financial system. While he also stated that the estimates were subject to “considerable uncertainty” it does indicate to me that he will be one of the MPC members to have voted for further asset purchases earlier this month. He was also joined but Deputy Governor Charlie Bean who said that “If we need more stimulus, another dollop of quantitative easing would be effective, but it all hinges on the outlook” We will find out in the minutes that are published on Wednesday morning.

The pound is also slipping on a report in the FT (link here) that there is a £12bn hole in the UK’s public finances i.e. that the deficit is larger than previously thought. This gives ministers here a real problem; do they extend the austerity measures to account for the increase or do they finally have to bow to the prospective realisation that growth is slowing and that some sort of Plan B may be needed.

The dollar is gaining this morning ahead of the Federal Reserve decision on Wednesday. The market is expecting some form of quantitative easing strategy from the FOMC in order to lower interest rates on everything from credit card debt to mortgages. The 2 day meeting starts tomorrow and is the main data point this week.

Other key pieces are German ZEW tomorrow and the BOE’s minutes on Wednesday.

Latest exchange rates at time of writing