After seeing highs of close to $1.35 yesterday, the euro came under selling pressure late in the day and overnight on talk that the US will not participate in plans to boost IMF funds and that the Bundesbank is against using new IMF funding directly for the EFSF. None of the reports have been confirmed but they did play into an already nervous market. Sentiment was also undermined by the announcement from ratings agency S&P that it was placing the sovereign ratings of most of the eurozone (including France and Germany) on negative watch. A French or German downgrade by even one notch could undermine the future of the EFSF. These two countries are the biggest contributors to the fund and help provide its triple-A rating. Broad based weakness in Asian share prices also contributed to the risk averse mood.

In other news overnight the Reserve Bank of Australia announced that it was cutting interest rates by a quarter point to 4.25%, citing tamer inflation at home and concerns about the outlook for the global economy as reasons for the move. Markets are anticipating further policy easing early next year. The UK BRC retail sales report, also released overnight, showed that same store sales fell 1.6% in November amid a background of milder weather and poor consumer confidence. This was the biggest fall since June and the sector remains pessimistic going into the year end. Meanwhile, the Halifax survey of UK house prices is due for release this morning. Sterling is off against the dollar this morning, while seeing some modest gains versus the euro. The Irish government unveiled €2.2billion of spending cuts yesterday. With much of the detail known in advance there was little market reaction. Today sees the Finance Minster Michael Noonan delivering the second half of the budget package, which will contain €1.6billion in taxation measures.