No major currency outperformed Britain’s pound this week and analysts at the world’s biggest foreign-exchange trader see scope for further gains, at least versus the euro.
With negotiations between Greece and European officials crumbling and the indebted nation’s future in the euro hanging in the balance, the allure of the relatively stable sterling has come to the fore. Data pointing to an economic recovery firming up in the U.K. and the Bank of England’s moves toward raising interest rates are adding to the pound’s strength.
“Sterling offers a good alternative to the euro,” said Josh O’Byrne, a foreign-exchange strategist at Citigroup Inc. in London, ranked as the largest currency dealer in an annual Euromoney Institutional Investor Plc poll. “Sterling fixed-income is comparatively a favorite option for European investors.”
The pound appreciated 1.3 percent this week to 71.45 pence per euro at 5:47 p.m. London time on Friday and reached 71.26 pence, its strongest level since May 28. Sterling rose a second week versus the dollar, climbing 2 percent to $1.5872. It reached $1.5930 on Thursday, the highest level since November.
O’Byrne said the pound will strengthen through 70 pence per euro in the next six months.
Sterling strengthened 4.8 percent in the past three months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. Its 1.8 percent surge this week also surpassed all peers.
The U.K. currency was driven higher as traders brought forward bets on the timing of the Bank of England tightening monetary policy. That was inspired by data this week showing the fastest increase in Britons’ wages since 2011 and the BOE saying factors holding back the economy were fading.
While few economic reports are due next week, Greek negotiations will continue, starting with an emergency summit of government leaders in Brussels on June 22.
“The ongoing Greek-EMU turmoil” is sterling’s strongest driver at present, “with safe-haven inflows likely to persist into July,” 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. “In the week ahead it should be reasonably plain sailing” for the pound, they wrote.
U.K. government bonds fell in the week, pushing the 10-year yield two basis points higher to 2.01 percent at the Friday close. That’s 125 basis points more than yields on similar-maturity German bunds. The 5 percent gilt maturing in March 2025 declined 0.215, or 2.15 pounds per 1,000-pound face amount, to 126.305.