Greek pain sends euro to new low against pound

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The single currency fell as low as 81.84p as it came under pressure after the cost of protecting Greek government debt against default rose to a record high. It now costs bondholders 972,000 to protect 10 million of Greek government bonds.

Analyst CMA DataVision said there was a 56.5% chance of a Greek sovereign debt default.

Sterling was also helped by optimism that the budget will get Britain back on a sound financial footing, which offered more incentive for investors to cover extreme short positions in the pound.

The pound has rallied for much of the month as investors unwound bets that it would depreciate.

Analysts said a continuation of this would push sterling higher. "It's hard to be bearish when you've got all those ducks lining up," said Peter Frank, currency strategist at Société Générale. He expects the euro to fall under 80p in the near term.

The pound also hit its strongest level against the dollar since the middle of last month, climbing as high as $1.5012 at one point this morning.

Analysts said the pound would be poised for more gains if it manages to end the month above $1.50.

"It's all about the aftermath of the new coalition saying and doing the right thing about the budget deficit," said Paul Robson, strategist at RBS.