What moved the pound
The BOE's trade weighted measure of sterling has been trending higher since September and this week cleared its May 2025 peak, marking the firmest reading since the referendum year. That strength lines up with cable too, as the pound briefly moved above $1.35 to its best level since mid-September. Sterling has also beaten most of its Group-of-10 peers so far this year.
For context, the BOE index tracks sterling's value against trading partners and is meant to capture shifts in UK price competitiveness for goods and services.
Why markets care
Support for the currency has come from sturdy UK growth, early signs that the labor market is steadying, and a calmer political backdrop. October figures showed private sector activity growing at the quickest clip in eight months, and a two-year slide in employment halted.
Investors also welcomed the budget presented by Chancellor of the Exchequer John Healey, noting there were no major fiscal surprises and UK assets responded positively.
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Policy and the portfolio
Focus now turns to the BOE decision later Thursday. Pricing points to a 0.25 percentage point increase, which would be the first move in three years if delivered, and traders will parse guidance for what comes next. Swaps are pricing in no fewer than two rate hikes in the coming year, though the recent drop in oil prices may reduce the impetus for further aggressive tightening.
The bottom line: a firmer pound and a potentially higher UK rate path change currency and rate exposure math for global portfolios. Consider where your UK revenue, costs, and hedges sit relative to sterling strength.
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