The euro, weighed down by news that the Valencia region of Spain would seek central government help to repay its debt, hit an intra-day low of 77.68p. This was its weakest since October 2008 – the month after the collapse of US investment bank Lehman Brothers.
Sterling shrugged off news of a sharper-than-expected deterioration in UK public finances. Underlying public sector net borrowing was £14.4billion in June, exceeding the City's £13.4bn forecast. Office for National Statistics' data due next week are expected to show the UK stayed stuck in recession in the three months to June with a third straight quarterly fall in gross domestic product.
The euro closed in London at 77.89p – down 0.1p on the day.
Lucy O'Carroll, chief economist at Scottish Widows Investment Partnership, said of sterling's recent climb against the euro: "The drivers of it are really a lot to do with issues in the eurozone, rather than issues in the UK, and specifically the fact that the UK has the luxury of its own currency.
"Eurozone countries are coming to terms with the full implications of dealing with their own situation, and that seems to be driving safe-haven flows into sterling. That could continue for some time. There are reasons to think the current stronger position of sterling could be maintained over the next few months as the eurozone addresses these issues."
The pound's strength against the euro is good news for holidaymakers from Scotland who are visiting eurozone countries. But it may make life more difficult for some Scottish exporters selling into eurozone markets.
Asked if she thought sterling's recent rise against the euro would have much impact on the competitiveness of Scottish exporters, Ms O'Carroll replied: "It depends on whether it is sustained or not, and it is hard to say because it is not just the price of what we export – it is (also) the nature of what we export and it is the strength of demand in our export markets.
"We saw a period, until recently, when sterling had fallen by about 20% against the euro, giving us a potential competitiveness gain of about 20%. It did drive a pick-up in export demand but maybe not as much as we would have wanted. I think that reflects the challenges of exporting to markets which have their own issues of weak demand."
She added: "It is tricky for exporters because the value of the currency matters very much to what they do but they have to look through that, to see the longer-term opportunities - in an environment where sterling is perhaps stronger than they would ideally like."
