UK economic resilience combined with rate hike expectations has pushed the pound to its strongest level since 2016, with the market betting on two more hikes this year.

Supported by resilient UK economic data and rate hike expectations, an indicator measuring the strength of the pound rose to its highest level since 2016. The Bank of England's sterling effective exchange rate index has been rising steadily since September, breaking above the May 2025 high this week to reach its strongest level since the Brexit referendum. The UK's resilient economic growth, signs of stabilization in the labor market, and easing political risks have collectively supported the pound. So far this year, sterling has outperformed most G10 currencies, breaking through US$1.35 this week to hit its highest level against the dollar since mid-September. Pound Rises to Strongest Level Since 2016 Market attention now turns to the Bank of England's policy decision later on Thursday. Markets have priced in a 25-basis-point rate hike, the first in three years, with traders focusing on guidance regarding the path ahead. Swap markets imply at least two more hikes over the next year, although the recent decline 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 welcomed by investors. Meanwhile, October data showed the UK private sector expanding 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 overall changes in the trade-weighted value of sterling and is designed to gauge changes in the price competitiveness of tradable goods and services.