By FXEmpire.com

The GBP hit a 22-month high against the euro today as fears grew about the strength of Spain’s economy.

A pound sterling exchanged at 1.23 euros as the UK was seen as a “safe haven” after figures confirmed Spain was back in recession and 16 Spanish banks had their credit ratings downgraded.

The drop in the euro will be welcomed by UK as it will help ease the pressures as the summer vacation and travel season is about to begin.

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.

Sterling rose to fresh multi-month highs on a trade-weighted basis on Monday as investors continued to view the British currency as a safer bet than the ailing euro and a softening U.S. dollar. It seems that UK austerity program is proving successful.

Analysts said the pound’s strength were becoming stretched, given the British economy is technically in a recession, which is likely to prevent the Bank of England from tightening monetary policy for the foreseeable future.

The GBP rose to an eight-month high of $1.6298 against the dollar which itself skidded to a two-month low versus a basket of currencies as weak U.S. growth data on Friday reinforced dovish U.S. monetary policy expectations and a disappointing GDP release.

A less dovish tone in April’s BoE policy minutes reduced the scope for further increases in its asset purchase programme which currently stands at 325 billion pounds.

Sterling bears have capitulated but it will take some good news to generate a build-up of long positions, and pave the way for EUR/GBP to push on towards 80 pence.

The euro slipped to a 22-month low of 81.24 pence with worries over euro zone debt markets, notably Spain, keeping investors on edge over the common currency.

Sterling’s next target against the euro is the June 2010 high of 80.67 pence. With the euro accounting for more than half of sterling’s trade-weighted index, Bank of England data showed the pound trading at a fresh 32-month trade-weighted high of 83.5.

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Originally posted here