However, sterling weakened later in the session as the dollar climbed on its safe-haven status, amid the eurozone turmoil.
The euro fell as far as 77.53p yesterday – its lowest against the pound since October 2008.
In recent times, sterling has sometimes gained on the euro's woes because the UK, by virtue of having its own currency, is viewed as part-removed from the turmoil. At other times, sterling has been dragged lower with the euro because of the UK's proximity to the eurozone, and the importance of trade links with the Continent. Sterling moved higher, then lower, yesterday as these opposing sentiments played out.
The pound closed more than one cent lower against the US currency in London, at $1.5512 compared with a Friday close of $1.5629, after coming under pressure as the session progressed.
The euro recovered some ground against sterling to finish at 78.16p – up nearly 0.3p on the session but down on its 80p-plus levels earlier this month. The single currency traded above 90p as recently as July last year.
Greek Prime Minister Antonis Samaras has said his country was in a 1930s-style Great Depression. German Economy Minister Philipp Roesler meanwhile cast doubt on Greece's ability to fulfil its bail-out conditions. Spanish bond yields meanwhile soared to around 7.5% as fears Spain would require a full-scale bail-out grew, amid reports that half-a-dozen other regions might join Valencia in seeking central government support.
Stock markets tumbled. The UK's FTSE-100 index of leading shares finished 117.9 points lower at 5533.87, after touching an intra-day low of 5510.92.
John Higgins, senior markets economist at consultancy Capital Economics, said: "The latest rise in yields above 7% does not make a full-blown bailout of the Spanish sovereign inevitable After all, the yield topped 7% in mid-June, only to fall back.
"Nonetheless, it is worth recalling that a decisive breach of the 7% sovereign bond yield level was followed by full-blown bailouts in Greece, Ireland and Portugal before too long. We think the Spanish Government is on borrowed time, too."
