Pound Hits Post-Brexit High Amid Rate Hike Anticipation
Sterling's effective exchange rate index reaches 86.5372, its strongest level since the 2016 referendum, as Bank of England prepares for first rate increase in over three years.
Sarah Connor
The pound has reached its joint strongest overall level since the Brexit referendum.
The pound surged 0.13 percent against the dollar in early trading Thursday, hitting $1.3495. Traders widely expect the Bank's nine-member Monetary Policy Committee to raise interest rates today, the first time in over three years.
A year ago, £1 bought €1.1334; it now stands at €1.1981. The Bank of England will confirm the index reading Thursday, following the interest rate vote announcement.
Sterling's recent strength stems partly from a dollar fall after Democrats seized control of both chambers of Congress in this week's US midterm elections. The dollar weakened Wednesday after the Democratic victory, amid a risk-on rally that saw money flow into other currencies.
Ajith Nair claims markets take comfort from the election result. He believes it means the Trump administration will face greater constraints in pursuing some of the more disruptive parts of its policy agenda over the final two years of the presidency. Sterling also received a boost ahead of the Bank of England’s interest rate decision Thursday, anticipating a hike to 4%.
Sterling has also drawn greater attention since Chancellor John Healey's Budget, which set out tax and spending plans intended to protect households from what he called "global economic storms." The pound's recent strength against other currencies, such as the euro and the yen, contributes to its current high level.
European stock markets rose Thursday morning. The FTSE 100 gained 0.6%, Germany's Dax rose 0.6%, and France's Cac 40 climbed 0.8%. The two-year gilt yield on Thursday sits just under 4.73 percent.
A stronger pound benefits Britons when buying on holiday or importing from overseas. However, Michelle Dewberry claims the UK national debt is climbing above £3 trillion.