It Might be Raining but the Outlook’s Brighter – Pound hits three and a half year high against the Euro.

Yesterday the pound hit a new three and a half year high against the euro. Earlier in the week, as a result of the bank rate fixing scandal and comments made by Bank of England Governor Mervyn King, the pound experienced a slight dip and fell against the dollar.

However, despite the BoE chief expressing his opinion that the British economy was showing little signs of recovery the pound bounced back as the market refocused on the euro-zone debt crisis, with Spanish bailout plans dominating the news. A report which outlined May’s unforeseen surge in U.K manufacturing has also helped strengthen the pound and carry it to this three and a half year high.

The euro has seen several setbacks this week. It was left staggering against the major currencies after little progress was made during the meeting of euro-zone finance ministers.   The EU pledged 30 billion Euros to Spain, and Italian Premier Mario Monti stated that Italy might also need a helping hand. This, coupled with the looming shadow of a German constitutional court ruling (which could frustrate the arrangement of euro-zone rescue funds) saw the euro shed 0.4 per cent, dropping to 79.005 pence.

Although RBoS foreign exchange strategist Ankita Dudani has urged caution, stating that ‘Today’s data doesn’t mean the economy is returning to growth’, the pound has made an advance of 4.3 per cent in the past year, making it the third-best performer among the 10 developed nation currencies, with the yen and the dollar taking the top spots. For five consecutive days the pound has risen against the euro, climbing a further 0.3 per cent yesterday and taking it to 79.01 pence per euro.