Turning to Italy, Belgium Auctions

Euro buoyed by reports of IMF EUR 600 bln loan to Italy, German inflation set to drop, sterling weaker ahead of UK inflation report hearings.Turning to todays auctions from Belgium and Italy,

Euro boosted by weekend reports of a 600bn IMF bailout of Italy, following late Fridays Belgium downgrade by Standard and Poors to AA from AA+, with a negative outlook, implying the risk of a further ratings cut. There were also reports that France and Germany considering options outside the bounds of the existing treaty with talk of a tighter stability pact, involving a core of 8-10 nations to attain unilateral fiscal measures in an attempt to try and speed up fiscal consolidation.

Rising bond yields in the PIIGS as well as Germany have sparked concerns that Europe is fast approaching the fiscal buffers so to speak unless the impasse is broken with respect to next steps.

Against the backdrop of rising yields, Belgium is due to raise 2bn today in 5 and 10 year bonds, while Italy is to raise 1bn in 10-year bonds.

German CPI data for November due out today is expected to show a slowing in inflationary pressures from 2.9% to 2.7%, with monthly prices expected to slip back 0.7%, raising the possibility of a much larger rate cut than 0.25% at the next rate meeting.

GBP traders focus on this afternoons treasury committee and Bank of England governor Mervyn Kings attendance where he will go through last weeks inflation report, prior to tomorrows Autumn statement by the Chancellor of the Exchequer. Given that the OBR will have to once again downgrade its growth forecasts for 2011 and 2012 the Chancellors room for manoeuvre would appear somewhat limited given the events in Europe.