The U.K. pound advanced for a second week versus the euro as escalating concern over a Greek default weighed on the single currency.
Sterling advanced for a ninth day against the euro, its longest run of gains since September, as Greece lurched closer toward exiting the currency bloc after talks in Luxembourg between European finance officials failed to reach agreement on conditions for aid. The pound rose as investors sought its relative safety after economic data this week cemented the view that the Bank of England was on course to tighten monetary policy.
“The situation in Greece is hanging on markets right now given developments haven’t been positive,” said Keng Goh, a foreign-exchange strategist at Royal Bank of Canada in London. “Sterling is acting as a safe haven from problems in Greece. Also, sentiment is a little bit better for the U.K. as opposed to the slow deterioration in negotiations in Europe.”
The pound appreciated 1.4 percent this week to 71.40 pence per euro as of 5:04 p.m. London time and reached 71.26 pence earlier on Friday, its strongest level since May 28. Sterling rose 2 percent from its level on June 12 against the dollar to $1.5875. It reached $1.5930 on Thursday, the highest since November.
A report Friday showed Britain had its smallest budget deficit for any May since 2007. U.K. net borrowing excluding public-sector banks was 10.1 billion pounds last month compared with 12.4 billion pounds a year earlier, the Office for National Statistics in London said. Economists in a Bloomberg survey had forecast a 10.3 billion-pound shortfall.
Sterling has strengthened 4.8 percent over the past three months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The rally was supported this week as data showed Britons’ wages grew in April at their fastest pace since 2011 and an unexpected pick-up in retail sales in May.
Markets were also prompted to bring forward their assessment of when U.K. interest rates will rise after minutes of the Monetary Policy Committee’s June meeting showed officials said factors holding back the economy were fading. Investors are now pricing in a quarter-point rate increase by July 2016, according to derivatives data from ICAP Plc.
After “supportive MPC minutes,” next week’s data are unlikely to push back views on the timing of the next BOE move, analysts at Credit Agricole SA’s corporate and investment-banking unit, including London-based head of Group-of-10 currency research, Valentin Marinov, wrote in a note to clients. “It should not surprise then that we retain a positive GBP outlook,” they wrote, referring to the pound.
U.K. government bonds rose with their European counterparts on Friday. Benchmark 10-year gilt yields fell four basis points, or 0.04 percentage point, to 2 percent. The 5 percent security due in March 2025 climbed 0.350, or 3.50 pounds per 1,000-pound face amount, to 126.31.
The yield on German 10-year bunds, the euro area’s benchmark sovereign securities, dropped six basis points to 0.75 percent.