Pound rises to 22-month high against euro

A pound bought 1.23 euros as the UK was seen as a “safe haven” after figures confirmed Spain was back in recession and nine Spanish banks had their credit ratings downgraded.

The drop in the euro will be welcomed by UK holidaymakers heading to the continent but will worry manufacturers trying to grow exports to Europe, the UK’s biggest trade partner.

The pound at times rose to its highest point against the US dollar since September amid growing signs that the strong recovery in the US is starting to slow.

The UK is seen as a safe haven despite suffering a double-dip recession because it is one of the few large western economies to have held on to its cherished AAA credit rating.

Kathleen Brooks, a director at currency trader Forex.com, said: “The eurozone crisis is the key driver of why the euro has been weakening.

“The downtrack in the euro has been building up for a while. Things in the UK are not great, but in Europe they are worse.”

She believes the pound will continue to gradually “grind” higher against the euro but it would take another escalation in the eurozone debt crisis for it to make substantial gains.

If the pound were to reach 1.24 against the euro, it would be up at levels not witnessed since 2008.