Markets at fever pitch as pound hits 15 month high

The pound soared to a 15-month high versus the euro yesterday as concerns continued to grow over the state of the single currency and the eurozone banking sector. Investors responded to positive news on the UK economy, sending sterling above €1.21, its strongest position since September 2010 and a 10 per cent rise over 2011’s low of €1.106.

Euro woes continued with a sharp fall against the dollar to $1.28, its lowest point for 16 months. UK holidaymakers heading for winter ski or sun breaks in Europe will benefit from the hike in the rate, although manufacturers are concerned the stronger pound will hit exports to Europe, the country’s major trading partner.

Forex research director Kathleen Brooks stated, fear in the markets has reached fever pitch as eurozone issues continue to raise their heads. Eurozone banks are again at the forefront of investors’ concerns, with a report that Spanish banks are forced to sequester an extra €50 billion to cover bad loans also suggesting the Spanish government’s reluctance to cover its ailing banks.

UniCredit, Italy’s largest bank, yesterday announced a 69 per cent discounted stock option to raise cash, indicative of growing pressure on the country’s lenders. In France, a debt auction saw lower demand and higher borrowing costs than the previous auction in December, reigniting concerns over a downgrade by rating agencies of the country’s present AAA status.

Analysts, however, believe the 10-year bond sale was reasonably successful, with demand for French bonds holding up well.