The Zhitong Finance App learned that, supported by resilient UK economic data and expectations of interest rate hikes, an indicator measuring the strength of the pound rose to its highest level since 2016. The Bank of England's effective exchange rate index for the pound has been rising steadily since September. This week it rose above the May 2025 high, hitting the strongest level since the Brexit referendum.
The UK economy remained resilient, the labor market showed signs of stabilization, and political risks were mitigated, which together supported the British pound. Since this year, the pound has outperformed most currencies in the Group of Ten (G10), breaking through $1.35 this week, the highest level against the US dollar since mid-September.
The British pound exchange rate rose to its highest level since 2016
Market attention is now turning to the Bank of England's policy decision late on Thursday. The market has taken into account the 25 basis point rate hike forecast. This is the first rate hike in three years, and traders will focus on guiding the next path. The swap market suggests at least two more rate hikes in the next year, although the recent drop in oil prices may ease the pressure on policymakers to tighten more aggressively.
British assets are also supported by Chancellor of the Exchequer John Healy's Budget, which had no major fiscal surprises and was welcomed by investors. Meanwhile, October data showed that the UK private sector expanded at its fastest pace in eight months, and the two-year decline in employment came to an end.
The Bank of England's index measures the overall change in the value of the British pound's trade-weighted exchange rate. The purpose is to measure changes in the price competitiveness of tradable goods and services.