British Pound: Sterling draws support from Budget relief and BoE – Societe Generale

The UK is on course for the fastest fiscal consolidation in the G7, according to Societe Generale analysts, who say this could ultimately underpin Gilts and Sterling. Following the UK Budget, they see room for a relief rally in GBP/USD ahead of a potentially hawkish Bank of England rate rise. They identify support for cable at 1.3250 and resistance at 1.3430.

Fiscal consolidation sets the backdrop for BoE policy

Gilts responded positively to the UK Budget and a modest rise in DMO issuance, weighted towards the front end. The Budget deferred decisions on welfare and defence spending, while raising the bank profit surcharge tax to reduce household energy bills.

"Though spending risks remain, our economists note that UK is likely to remain the fastest fiscal consolidation among the G7."

"Conditional on the BoE getting inflation under control, the fiscal outlook and successful EU reset could lead investors to turn more bullish on UK fixed income and sterling over the medium term."

"Run of four days of profit taking ends in cable, green light for post-Budget relief rally."

"Hawkish BoE hike next week could add to short covering. Support 1.3250, resistance 1.3430."

"Support EUR/GBP 0.8355/30 into ECB."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)