Euro falls to new low against pound

 

The euro fell to a 15-month low against the pound today as pressure in the eurozone intensified.

A pound bought 1.21 euros, while the single currency also hit a 16-month low against the US dollar, as economic woes in France, Spain, Italy and Greece came to the fore, fuelling fears over the ongoing crisis on the continent.

The drop in the euro will be welcomed by UK holidaymakers heading to the continent for winter breaks or on skiing trips, but will bring some concern to manufacturers, who have relied on a weaker pound to encourage exports to Europe, the UK's biggest trade partner.

Kathleen Brooks, research director at Forex, said "fear has reached fever pitch" in the markets as a number of catalysts damaged traders' appetite for risks.

Spanish banks will need to put aside an extra 50 billion euros (£41 billion) of capital to cover rising bad loans, according to a report, which also suggested the Government was not prepared to offer further help to ailing banks.

Meanwhile, Italy's largest bank, UniCredit, announced that it would offer stock at a 69% discount to raise cash - in a worrying sign of how much pressure banks are facing.

Elsewhere, a debt auction in France saw higher borrowing costs and lower demand than an auction at the start of December, which once again raised fears over the country losing its AAA credit rating.

France sold eight billion euro (£6.6 billion) of bonds at an auction, paying an interest rate of 3.29% to borrow for 10 years, up from 3.18% at the last sale in December.

Greek prime minister Lucas Papademos told a US newspaper his country could default on its debts and even exit the currency bloc if it cannot deliver on promised economic reforms in the next few weeks. The troika - delegates from the European Commission, European Central Bank and International Monetary Fund - will visit Greece on January 16.

The barrage of troubling developments hit banking stocks as well as the euro, with Lloyds Banking Group falling 1% on the FTSE 100 Index, along with Barclays, which lost 2%, and RBS which dropped 1%.

PA

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