News that Germany could be finally ready to confirm Angela Merkel as its new chancellor has helped buoy the euro this morning.

The decision looks set to end weeks of instability after the inconclusive German election, although the assumption of power by Ms Merkel will see Gerhard Schroeder's rival party, the Social Democrats, take up a number of key posts in government.

This morning the euro stood at 1.2124 dollars and at 1.4508 to the pound.

However, traders warned that the fillip for the euro was unlikely to yield a long-term impact.

Rabobank's Lee Ferridge told Reuters: "Yes they've reached an agreement, but it remains to be seen whether the grand coalition can work and whether it actually delivers the reforms."

Meanwhile in the UK the pound was pulled back by figures from the Office for National Statistics showing inflation was rising.

This week sees further indications of the retail industry, as Marks & Spencer issues a trading update tomorrow and WH Smith reports full-year results on Thursday.