The pound rose to the highest in five weeks versus the euro amid concern that Ireland may struggle to stem its fiscal shortfall as it negotiates with the European Union, boosting demand for Britain’s currency as a haven. Sterling has appreciated versus the European currency every day since Nov. 4, when the Bank of England kept its so-called quantitative easing program unchanged as the strength of the recovery persuaded officials to hold off buying more government bonds. European Union Economic and Monetary Affairs Commissioner Olli Rehn meets Irish policy makers today to discuss spending cuts and tax increases, while German Chancellor Angela Merkel said last week that European bondholders should share the cost of any restructuring. The pound “will be driven very much from the European side,” said Ian Stannard, a senior currency strategist at BNP Paribas SA in London. “We have the ongoing discussion of the bailout and rescue packages once the current package expires. That’s not going to help the euro in the near term, hence we’ll probably see it dip lower.” The pound appreciated 0.4 percent to 86.34 pence per euro at 2:35 p.m. in London. It earlier reached 86.14, the strongest since Sept. 30. Sterling fell 0.3 percent against the dollar to $1.6142. It declined 0.3 percent to 131.06 yen. The pound has still dropped 4.4 percent this year against a basket of its developed-country peers, according to Bloomberg Correlation-Weighted Currency Indexes, making it the third- worst-performing currency after the euro and Norwegian krone. EU Support “A lot of people were looking for euro-sterling to trade higher on possible Bank of England quantitative easing,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London. “That hasn’t materialized, and they’re trimming some of those positions now. It’s a bit of a pain trade for the market.” Ireland aims to win support from the EU to avoid a Greek- style bailout as investors balk at buying Irish bonds. While it has the funds to avert the need for an immediate rescue, Ireland’s cash may run out in the middle of next year unless it can raise money from the bond market in 2011. Morgan Kelly, an economics professor dubbed Ireland’s “Doctor Doom,” wrote in today’s Irish Times that the economy will need to be bailed out amid a wave of mortgage losses. Standard & Poor’s last month restored its outlook on the U.K.’s credit rating to “stable” from “negative” after third-quarter growth beat estimates and Chancellor of the Exchequer George Osborne announced plans to slash spending. U.K. government bonds declined, pushing the 10-year gilt yield up 1 basis point to 3 percent. Two-year note yields rose three basis points to 0.67 percent. Last week, the 10-year gilt posted its biggest weekly gain in more than two months. To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net. To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.

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