The pound strengthened to a five- week high against the dollar as speculation European policy makers are stepping up measures to stem the region’s debt crisis improved the outlook for the U.K. economy. Sterling headed for a third weekly gain versus the greenback after German Chancellor Angela Merkel and French President Francois Hollande said their countries would do everything needed to keep the euro area intact. Gilts dropped for a second day after a U.S. report showed the world’s biggest economy expanded more in the second quarter than analysts forecast, damping demand for safer investments. The dollar weakened versus most of its major peers. “The pound’s rally is down to dollar weakening, which has stemmed from better risk appetite,� said Adrian Schmidt, currency strategist at Lloyds Banking Group Plc in London. The pound rose 0.2 percent to $1.5721 at 2:40 p.m. London time after advancing to $1.5747, the highest level since June 20. Sterling gained 0.6 percent this week. The U.K. currency was little changed at 78.39 pence per euro after climbing to 77.55 pence on July 23, the strongest since October 2008. In a joint statement made after a telephone conference today, Merkel and Hollande said the 17 members of the euro as well as institutions must fulfill their commitments “within their own areas of competence.� The ECB is preparing a plan to buy bonds in the secondary market in the coming weeks, France’s Le Monde newspaper reported. Quicker Growth Gilts dropped as the U.S. Commerce Department said gross domestic product grew at a 1.5 percent annual rate after a revised 2 percent gain in the prior quarter. The median forecast of economists surveyed by Bloomberg was for a 1.4 percent gain. The 10-year gilt yield rose three basis points, or 0.03 percentage point, to 1.52 percent after dropping to a record 1.407 percent on July 23. The 4 percent bond maturing in March 2022 declined 0.35, or 3.50 pounds per 1,000-pound face amount, to 122.14. The yield has risen three basis points this week. U.K. government bonds have returned 17 percent in the past year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 12 percent, and Treasuries rose 9.4 percent. The Bank of England will announce its next policy decision on Aug. 2. The central bank increased its asset-purchase target by 50 billion pounds to 375 billion pounds and kept its key interest rate at 0.5 percent at its prior gathering on July 4-5. The pound faces so-called resistance at its 200-day moving average of $1.5746 and its 100-day moving average at $1.5782, Lloyds’s Schmidt said. Resistance refers to an area where sell orders may be clustered. Sterling has appreciated 4.8 percent in the past year, the third-best performer behind the yen and the dollar of the 10 developed-market currencies tracked by Bloomberg Correlation- Weighted Indexes. The euro has weakened 7.2 percent. To contact the reporter on this story: Neal Armstrong in London at narmstrong8@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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