Sterling hits four-year high against euro

Exchange: Governor Sir Mervyn King and the Bank were at the centre of efforts to improve Libor STERLING hit its highest level against the euro for nearly four years last night as the single currency took a pounding, writesHugoDuncan.

The pound gained about 0.5pc to nearly €1.29 – its strongest level since October 2008 – on another dismal day for the eurozone.

It came as stock markets around the world tumbled, with shares in Madrid and Milan down sharply on renewed fears about the outlook for Spain and Italy.

The surge in sterling is good news for British holidaymakers travelling to the single currency bloc this summer but could damage exports as UK goods become more expensive.

‘The market is more focused on the eurozone than it ever has been, and that benefits sterling,’ said Richard Driver, currency strategist at Caxton FX.

The stock market in Madrid fell 5.82pc while Milan was down 4.38pc as investors worried that Spain and Italy will be forced to beg for financial aid.

Spain yesterday secured an £80bn bailout of its banks but many observers believe it is merely a prelude to a full-blown state rescue.

Borrowing costs in Spain hit a euro-area high well above the 7pc danger zone that triggered bailouts in Greece, Ireland and Portugal. The government in Madrid also warned that its economy will shrink 1.5pc this year and 0.5pc next year.

The Spanish economy and the country’s broken banks have been hammered by a devastating property crash. Its unemployment is the highest in Europe at nearly 25pc and more than half of people aged between 16 and 24 are out of work.

Eurozone finance ministers signed off the bailout of Spain’s banks. Olli Rehn, economics commissioner, said: ‘The aim is to provide Spain with healthy, effectively regulated and rigorously supervised banks, capable of nurturing sustainable economic growth.’