Supported by resilient UK economic data and rate hike expectations, an indicator measuring the strength of the pound has risen to its highest level since 2016.
The Bank of England's sterling effective exchange rate index has been steadily climbing since September, breaking above its May 2025 high this week to touch its strongest level since the Brexit referendum.
Resilient UK economic growth, signs of stabilization in the labor market, and easing political risks have combined to support the pound.
Since the start of the year, the pound has outperformed most currencies in the Group of Ten (G10), breaking through 1.35 against the US dollar this week to reach its highest level since mid-September.
Market attention now shifts to the Bank of England's policy decision later on Thursday.
Markets have priced in a 25-basis-point rate hike, which would be the first increase in three years, with traders focusing on guidance for the future path.
Swap markets suggest at least two more rate hikes over the coming year, although recent declines in oil prices may ease pressure on policymakers for more aggressive tightening.
UK assets have also been supported by Chancellor John Healey's budget, which contained no major fiscal surprises and was well received by investors.
Meanwhile, October data showed that the UK private sector expanded at its fastest pace in eight months, and a two-year decline in employment also came to an end.
The Bank of England's index measures the overall change in the trade-weighted value of the pound, designed to gauge changes in the price competitiveness of tradable goods and services.
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