Sterling reaches strongest level since Brexit referendum against currency basket
The pound climbed to its highest level against a basket of currencies since the 2016 EU vote as the dollar weakened after the US midterm elections.
By Yuki Kaminski ·
Sterling has reached its strongest level against a basket of other currencies since the day of the Brexit referendum a decade ago, according to Bank of England figures released on Thursday. The data showed that the pound reached the milestone on Wednesday, returning to a level last seen on 23 June 2016, before its sharp fall following the vote.
The advance followed a decline in the US dollar after the midterm elections, alongside recent gains for sterling against currencies including the euro and yen. The pound also received support on Thursday when the Bank of England increased interest rates for the first time in more than three years, making sterling holdings more attractive to investors.
The Bank’s sterling effective exchange rate index, which measures the pound against a basket of currencies, reached 86.5372. The index uses sterling’s value in January 2005 as a benchmark of 100. It stood at 87.9248 on the day of the referendum and subsequently fell as low as 73.1 on 23 March 2020 during the Covid pandemic. In the hours after the 2016 vote, the pound had sunk to a 31-year low against the dollar.
Following Wednesday’s Democratic victory, investors moved money into other currencies as appetite for risk increased. Deutsche Bank’s Jim Reid said the absence of a dispute over the election results had reduced political uncertainty. He also said the prospect of divided government had eased worries about the fiscal outlook because tax cuts and spending packages would become harder to pass.
On Thursday, sterling was little changed against the dollar at $1.3463 after gaining more than half a cent on Wednesday. It slipped slightly against the euro to €1.1985, having risen above €1.20 at the end of October to reach an 18-month high.
European shares also advanced on Thursday morning, extending the gains seen in US markets after Donald Trump’s midterm defeat. Britain’s FTSE 100 and Germany’s Dax each rose 0.6%, while France’s Cac 40 gained 0.8%.
Ajith Nair, chief investment officer at Isio Investment Management, said the positive response offered relief after recent weakness in AI-related shares. He said investors appeared reassured that the election outcome would limit the Trump administration’s ability to pursue some of its more disruptive policies during the presidency’s final two years.
Nair nevertheless cautioned against assuming Washington would deliver two uneventful years. A more difficult Congress would not remove the president’s ability to act, particularly on trade and foreign policy, he said, leaving that market expectation open to challenge.
