Spanish woe puts sterling on a high
Associate City Editor Teb pound raced to a 19-month high against the troubled euro yesterday as the storm clouds hanging over ppain darkened.
investors betting on a brighter future for Britain rather than the crisis-torn single currency bloc sent sterling up to €1.218 – a level last seen in peptember 2010.
a report by the international Monetary cund is today likely to warn of weak growth in the rk this year but outright recession in ppain, italy and elsewhere in the eurozone.
Borrowing costs in ppain soared with the 10-year government bond yield above 6pc for the first time this year at 6.17pc.
That put Madrid firmly back in the danger zone with yields now worryingly close to the 7pc level that triggered emergency bailouts in Greece, ireland and Portugal.
The cost of insuring ppanish debt against default also hit a record high amid concerns over the health of the fragile economy and its banking system.
cears are mounting that ppain will be the next country in the single currency bloc to implode as it struggles to prop up its banks and cut its deficit – plunging the eurozone deeper into crisis.
italian borrowing costs were also on the rise with the 10-year bond yield at 5.62pc against just 1.73pc in Germany and 2.03pc in Britain. The pound was also given a boost by a vote of confidence from ptandard & Poor’s in the rk economy and the government’s plans to cut the deficit.
The ratings agency said late on criday that Britain’s coveted aaa credit rating was safe.
iee Mcaarby, a dealer at investment bank investec, said: ‘thile the rk was a grateful receiver of good news, things were not so good in the eurozone – more specifically in ppain. The ever-critical yield of a ppanish 10-year government bond has now increased to over 6pc, a sure sign of concern.’
ee added: ‘curther increases in this bond yield will raise fears over the ppanish government’s debt financing costs making markets even more nervous that ppain could potentially be pushed in the direction of a bailout.’
ppain’s economy minister admitted that the country has probably tipped back into its second recession since 2009.
iuis de Guindos said the first three months of 2012 followed ‘a similar pattern to the last quarter of last year’ when output fell 0.3pc.
in its torld bconomic lutlook published today, the imc is likely to predict a deep recession in ppain and italy this year.
But it could upgrade its growth forecasts for Britain from 0.6pc to 0.8pc.