The pound appreciated toward its strongest in two weeks versus the euro as uncertainty that European leaders will forge a durable solution to the debt crisis boosted the relative allure of the U.K. currency. Benchmark 10-year gilts gained after regional leaders meeting in Brussels yesterday ruled out tapping the European Central Bank’s balance sheet to boost the size of a bailout fund for stricken member economies. A complete rescue blueprint won’t be released until another European summit is held in two days. The pound rose to a two-week high versus the euro on Oct. 21 after data showed the U.K. budget deficit narrowed in September more than economists forecast. “We’ve seen sterling performing reasonably well over the course of the last few sessions,” said Jeremy Stretch, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “There’s more uncertainty and less clarity in terms of the euro-zone issues than there are in the U.K. and, if you look to the end of last week, the public finance numbers looked a little better.” The pound strengthened 0.2 percent to 86.93 pence per euro at 12:57 p.m. London time, after climbing to 86.70 pence on Oct. 21, the strongest since Oct. 10. The U.K. currency was little changed at $1.5951 and fell 0.3 percent to 121.35 yen. Net Borrowing Sterling has appreciated 1.5 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. It declined 2.9 percent in the first half of the year as the British government introduced the deepest public spending cuts since World War II in its attempt to eliminate the structural deficit by 2015. The U.K.’s net borrowing excluding support for banks shrank to 14.1 billion pounds from 15.4 billion pounds a year earlier, the Office for National Statistics reported last week. A shortfall of 15 billion pounds was predicted by economists in a Bloomberg News survey. Revenue rose 4.2 percent and spending climbed just 0.5 percent. The 10-year gilt yield was two basis points lower at 2.51 percent. The 3.75 percent bond maturing September 2021 rose 0.14, or 1.4 pounds per 1,000-pound face amount, to 110.730. Two-year yields were little changed at 0.58 percent. U.K. Prime Minister David Cameron and French President Nicolas Sarkozy yesterday argued over the right of non-euro nations to attend the Oct. 26 meetings as leaders scramble to reach an agreement. Cameron said the talks should include leaders from all European Union states. Sarkozy replied that if the U.K. wanted to be involved it should have joined the euro, said two people familiar with the summit encounter. Cameron Versus Sarkozy “We must safeguard the interests of countries that want to stay outside the euro, particularly with respect to the integrity of the single market for all 27 countries of the EU,” Cameron told reporters after the meeting. “This crisis means that greater fiscal and economic integration in the euro zone is inevitable, but this must not be at the expense of Britain’s national interest.” U.K. government debt has returned 11 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, surpassing the 6.6 percent return for German bunds and 7.7 percent increase for U.S. Treasuries. 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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