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In spite of talks starting between Greece, the IMF and ECB yesterday the euro was hit hard by the markets as fear levels over the Greek economy reached new record levels.

The yield on Greek 10 year debt moved through the 8% level for the first time in 12 years, the spread over bunds made yet another record at over 5% and the price of insuring against default moved higher as well. Portugal also saw rises in similar areas as the market worried over contagion to other EU countries. The IMF confirmed that

“In the near term, the main risk is that – if left unchecked – market concerns about sovereign liquidity and solvency in Greece could turn into a full-blown sovereign debt crisis, leading to some contagion,”.

The euro moved back into the 1.33s against the USD while GBP made a high of 1.1515 against the retreating single currency.

Until this meeting is over and a decision is forthcoming risk will continue to swirl round the euro and other risky currencies, limiting the possibility for gains.

Sterling was given a boost by mixed unemployment figures yesterday. Although the unemployment rate surged to 8%, the highest it has been since 1994, the number of people claiming job benefits fell by close to 33,000 people. This is mainly due to the number of long-term unemployed falling out of the figures. All the main political parties are seizing on this for their own ends ahead of tonight’s second Prime Ministerial debate on Sky News at 9pm.

Some analysts are seizing on the jobs figures as an indication that, with the stronger than expected inflation released on Tuesday, that interest rate rises in the UK may be just around the corner. We think this is unlikely as it risks too much (speed of recovery, credit to small businesses) for scant reward. However this belief is what seems to be driving the pound higher.

Releases today include the UK’s deficit figures and retail sales numbers at 09.30. With the latest numbers on what is the hottest of political potatoes being released today expect a volatile day for the pound