Pound sterling rose to its highest overall level since the June 2016 Brexit referendum as traders positioned for an expected rise in UK interest rates on Thursday. The move left the currency at 86.4 on the Bank of England's basket measure, a level that points to a very different market read on the UK than the one seen after the referendum.
The Bank of England's most-watched sterling index, based on a basket of 18 of the world's main currencies, reached 86.4 this week, with 100 set as its 2005 value. That is the joint highest level since June 2016, when the referendum triggered a sharp fall in the pound and set off a longer period of weakness through later shocks.
Jim O'Neill on UK momentum
Jim O'Neill, the economist and former Treasury minister, said: "I'm not surprised. People were, and to a lesser extent, are, underestimating the improving momentum in the UK." His reading matches the way some traders now describe sterling: stronger relative political stability, solid growth and a closer relationship with the European Union are helping the currency trade differently from the post-referendum years.
At 04:15 GMT on Thursday, the pound was up 0.13% against the dollar at $1.3495 and 0.16% lower against the euro at €1.1979. That split tells readers the move is not a broad, one-way surge across every pair; it is a measured repricing ahead of the Bank of England decision, not a panic move.
Bank of England decision on Thursday
The Bank of England's nine-member Monetary Policy Committee was due to decide on interest rates Thursday, with the first rise in three years widely expected. If that increase goes through, the immediate test for sterling will be whether the currency keeps holding this level once the policy move is no longer just anticipated.
Sterling's rise comes after the pound fell significantly after the Brexit referendum in June 2016 and later reached further lows during the Brexit process, the Covid pandemic and the 2022 mini-Budget. The complication is that higher energy and fuel prices have now hit consumer confidence, so a stronger exchange rate is arriving alongside a squeeze that can still temper spending even as imported goods and holidays become cheaper in pound terms.
