Business

Pound reaches 19-month high against euro

Pound Sterling v Euro

Last Updated at 12 Dec 2017, 09:26 GMT GBP:EUR twelve month chart
£1 buys change %
1.1325 -
-0.00
-
-0.07

The pound has hit a 19-month high as debt concerns weigh down on the euro.

It touched 1.2222 euros on Thursday, its highest since the immediate aftermath of the financial crisis in November 2008, before dropping back.

Markets continue to worry about the European debt crisis, with the perceived risk of a default by Greece hitting an all-time high.

Leading shares across Europe lost ground, with the UK's FTSE and Germany's Dax indexes down about 1.5%.

France's Cac 40 lost 2.4%.

Investors were concerned by comments by the US Federal Reserve on Wednesday evening, raising doubts about the strength of the economic recovery, largely reflecting "developments abroad".

Future rises

The pound strengthened largely on the back of negative sentiment towards the euro.

But it was also boosted by disagreement at the Bank of England about whether to raise interest rates.

At the Bank's latest monetary policy committee meeting, Andrew Sentance broke with colleagues - including governor Mervyn King - to vote in favour of a rate rise.

This raised market expectations of future rate rises, making sterling a more attractive investment.

The pound has rallied nearly 20% since reaching a low of 1.02 euros in December 2008.

However, it still remains well below the 1.5 level that it traded around in the years prior to the 2007 credit crunch.

Market fear

Sterling's revival is mainly down to the euro's fall from grace, and it is notable that the pound has not enjoyed a similar rally against the US dollar.

Markets are fearful over a European debt crisis that is already engulfing Mediterranean governments, and risks triggering a full-blown banking crisis across the continent.

The cost of buying protection against a default by the Greek government has hit an all-time high of 10% a year.

The euro has fallen 18.8% against the dollar since the crisis began in January.