Pound Gains Momentum With Economy Adding to Greece Haven Demand

The pound’s advance to a one-month high against the euro this week owed as much to the performance of Britain’s economy as to demand for a refuge from Greece’s debt talks. Data next week may give sterling bulls another boost.

The U.K. currency ended a week dominated by negotiations aimed at keeping Greece in the euro area with gains versus most of its major peers.

Cementing demand for the pound was an increase in 10-year government bond yields to the highest since November. They’re rising on speculation an improving outlook for the economy is pushing the Bank of England closer toward raising interest rates. And that’s in contrast to the European Central Bank, which is committed to implementing a 1.1 trillion-euro ($1.2 trillion) quantitative-easing program due to run until at least September 2016.

“It’s all about yield differentials and there is no doubt the BOE will raise interest rates before the ECB,” said Kathleen Brooks, London-based European research director at Gain Capital Holdings Inc.’s Forex.com unit. “The U.K. economy has outperformed that of the euro zone.”

The pound advanced 0.9 percent in the week to 70.88 pence per euro as of 5 p.m. in London on Friday, posting its third weekly gain. It touched 70.75 pence on Friday, the strongest level since May 27. Sterling was at $1.5739, a drop of 0.9 percent on the week.

U.K. gross domestic product expanded 0.4 percent in the first quarter, compared with an earlier reading of 0.3 percent, the Office for National Statistics will say on June 30, according to a Bloomberg survey of economists. London-based GfK NOP Ltd.’s gauge of consumer confidence will rise to 2 in June from 1 the month before, a separate Bloomberg survey shows.

That may encourage hawks at the Bank of England, after policy maker Martin Weale said this week that interest rates may need to climb soon.

Sterling gained 6.3 percent in the past three months in a basket of 10 major currencies tracked by Bloomberg Correlation-Weighted Indexes, the biggest advance in the group.

Benchmark 10-year gilt yields increased 18 basis points, or 0.18 percentage point, this week to 2.19 percent at the close on Friday. They touched 2.21 percent, the highest since Nov. 13. The 5 percent bond due in March 2025 fell 1.86, or 18.60 pounds per 1,000-pound face amount, to 124.445.