The pound has risen to its highest level since the onset of the global financial crisis. At 1.2389 euros, the value of a pound is at a 19 month high. A deadline for European banks to repay low interest loans taken out last year is causing concern for the markets, with some fearing that the banks will be unable to pay. The FTSE also dropped 2.8%, while France’s Cac was down 3.5% and Dax in Germany slipped 3.1%. This shows that the markets are also predicting the banks will default on their repayments. £442 billion worth of loan repayments is due to be paid this week, and the European Central Bank will have to help out those unable to pay. The ECB usually only offers loans to banks on short, 3 to 6 month terms. However, with some banks facing closure following the aftermath of the credit crunch, the ECB was forced to change its policy and offer low interest loans over 12 months. They will not offer 12 month loans to banks this time around, and this has led to fears that banks will continue to struggle. The health of the European banking sector is feared to be on the decline as it’s still unknown which banks will be unable to repay their debts. The pound is set to continue to rise while pressure on the Euro continues. “If inflation expectations show further signs of rising, and if nominal demand remains robust, we think the MPC will become increasingly uncomfortable with the current loose policy setting,” Barclays Capital said.

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