After a momentous week in which we got not only a new government but a new kind of government as well; in which the threat of debt contagion from Europe knocked Sterling off its pedestal; in which the US Dollar once again became the currency of choice for investors and speculators alike and in which England’s cricketers and Chelsea were victorious, we could probably all do with a breather and a bit of peace and quiet. I can’t promise that I’m afraid because the repercussions of all of the above are still reverberating around the markets (all except the sporting things of course).

Let’s start with Sterling which had a great start to the month but which has slipped to the bottom of its trading ranges with most currencies this morning amidst worries that the pace of progress that the government is likely to make in the reduction of the budget deficit probably isn’t sufficient to appease the credit markets. There are also further fears being expressed that the debt crisis affecting many countries in Europe may well have a knock on effect into the UK for reasons of UK bank exposure and a decline in Britain’s exports to Europe. There was slightly unprecedented agreement between the Bank of England and the new administration that early cuts to reduce the deficit were essential and the promised budget within 50 days of the new government taking over is still on the cards. Traders are worried though that the Lib-Con coalition will have to be more savage with the planned spending cuts that previously forecast and that could well slow the recovery. The new Chancellor of the Exchequer reveals some of his plans today so that will be very closely watched and dissected in minutiae as soon as he has spoke. By the way, it has been interesting to see how journalists have named the new coalition; as a nick-name Lib-Lab worked quite well in the past and Lib-Dem works well now but Con-Dem has some nasty connotations but Chris Blackhurst in the London Evening Standard made me laugh when he suggested the title of ‘Con-doms’ because the notion is inconceivable.

Aaaanyway....in Europe, things are still very tense. The trillion Euro bailout package is still thought to be potentially insufficient and there is grave concern over whether the Club-Med countries as they are termed, of Spain, Portugal, Italy and Greece have the political will to see the austerity measures they have undertaken through to completion. We have already seen riots in Athens and we have to be concerned that strikes and protests may hamper each government’s ability to stay in office and maintain the pace of cost cutting. Analysts are still concerned that the package may not be enough to avert sovereign debt defaults and that could be an end to the ‘unity’ of the Eurozone. German politicians have already suggested Greece should leave the Euro and if we look at each of the Club-Med countries, the same arguments they use against Greece could well apply elsewhere. The Euro could become France and Germany’s currency whilst other countries revert to their pre-1999 currencies. It sounds dramatic but such is the depth of feeling across Europe. Understandably, the Euro has hit its lowest level against the US Dollar in more than 4 years and the lowest against the Japanese Yen in 8 years. Sterling is being flattered by the Euro’s weakness and the Euro is perhaps the only currency against which the Pound hasn’t slumped in recent days. That’s great news for those with Euros to buy but clearly not helpful if you have a stack of Euros you need to sell.

Elsewhere, the US Dollar is still seen as the place to squirrel your money away in times of strife and the current strength of the USD is testament to that. The same could be said for the Swiss Franc which has always been a safe haven buy. And the Japanese Yen; a currency used widely as a source of loan funds used to invest in higher yielding countries, is also extremely strong in this current environment.

Meanwhile, there has been some weakness in the likes of the Australian and New Zealand Dollars as the volume of investors holding these currencies for their interest rate yield declines. We get New Zealand’s producer price indices tonight and the minutes from the last Reserve Bank of Australia meeting as well so look out for some volatility in these currencies between now and this time tomorrow.

Overnight news that the asking price for UK houses only grew by 4.3 percent last year won’t have helped the Pound as we start a new week and the lack of data on this gloriously sunny Monday in London won’t entice traders to get all hot and bothered. So we may actually have quite a quiet Monday. Obviously there are no guarantees but let’s hope we can ease our way into the week. The market news has been poor but news that BP was having success with its plans to staunch the flow of oil into the Gulf of Mexico was very welcome.

The rest of this week is awash with market moving data; if inflation numbers from the UK, EU and US aren’t enough to keep you thinking then how about the minutes from the last Bank of England and US Federal Reserve meetings or UK government debt levels or UK retail sales or the German IFO institute’s business climate index. I am sure we have something to keep even the most disinterested trader alert.

So have a great week everyone; it is bound to be a better one than the MOT tester who wrecked a £200,000, 190 mph Ferrari Scaglietti while he was ‘road testing’ it before returning it to the owner and probably better than Lord Triesman who has lost his job after young lady friend taped him suggesting the Russians would collude with the Spanish to bribe referees. It must be said that some of the Spanish press think Lord Triesman may be on to something but being caught on tape saying it by a mistress is clearly beyond the pale. When will these silly old fools stop being flattered and disarmed by pretty young things intent on stardom and capable of doing anything to achieve it? I guess that is a question as old as time itself.